31533 FOREWORD “I sincerely believe that the effective implementation of competition policy is fundamental to sustainable economic growth in Indonesia. Likewise, I am convinced that the faulty implementation of our new competition law could set Indonesia’s economic reform efforts backwards, not forward. It is important we do it right.” With this opening statement, Mr. Kwik Kian Gie – then Indonesia’s Coordinating Minister for Economy, Finance and Industry – synthesized the content of two international conferences held in Jakarta and Surabaya in May 2000 on the links between competition policy and economic growth in Indonesia. The conferences were organized by the World Bank in collaboration with Germany’s Technical Cooperation Agency (GTZ), the United States Agency for International Development (USAID), the Australian Agency for International Development (AUSAID), the Canadian International Development Agency (CIDA), the Asian Development Bank (ADB), and the Ministry of Industry and Trade of Indonesia. The conferences were timely, following significant competition reforms in Indonesia, including the enactment of Law No. 5/1999 regarding Prohibition of Monopolistic Practices and Unfair Business Competition (“Competition Law”), and the creation of the Supervisory Commission for Business Competition (Komisi Pengawas Persaingan Usaha “KPPU”), the government authority in charge of promoting competition and enforcing the competition law. In that context, the conferences provided an opportunity to exchange views, and share experiences and lessons of different countries to assist Indonesia in the design, formulation, sequencing and implementation of policies aimed at fostering more efficient and competitive markets in Indonesia. The interface of competition policy with related national policies dominated a considerable portion of the conferences, with participants discussing issues such as small and medium enterprise development, consumer protection, regulatory reform, privatization, intra-regional trade, and the international aspects of competition policy. This report hopes to concisely and accurately convey the spirit of the discussions that took place during the conferences and to stimulate further discussion of the important issues raised. The report draws upon 25 presentations made by senior private and public sector officials, practitioners, and academics from Asia, Europe, North and South America, Australia, and Indonesia, representatives from various international organizations, including the World Bank, the Organization for Economic Cooperation and Development (OECD), the Asian Development Bank (ADB), and the United Nations Conference on Trade and Development (UNCTAD), as well as upon comments from some 200-floor participants who attended the conferences representing various private sector, government, academic, and consumer institutions in Indonesia. The report was prepared and edited by Luis Tineo (The World Bank) and Maria Coppola (Columbia University Law School), who take sole responsibility for its content. Nevertheless, the editors wish to thank Megawati Sulistyo, W. Bernard Drum, R. Shyam Khemani, Ronald Adams, Eleanor Fox, and Mohammad Iqbal for their valuable comments and logistic support; Theresia Slamet for the translation of the report into Bahasa Indonesia; and Bambang Adiwiyoto for the review of the Bahasa Indonesia version of the report. The contributions of all the conference participants and co-sponsoring institutions are gratefully acknowledged. The publication of this report is possible thanks to the financial support of the Government of Japan. TABLE OF CONTENT I. Economic Growth and Competition ........................................................................................................ 1 The Case for Competition ........................................................................................................................... 1 Understanding the Free Market Model ....................................................................................................... 2 II. Implementing the Model: Instruments of Competition Policy ............................................................. 3 Policy Sequencing ....................................................................................................................................... 3 Trade Liberalization .................................................................................................................................... 4 Foreign Direct Investment ........................................................................................................................... 5 III. Figuring out the Fundamentals: The Substance of Competition Law and Policy ............................. 7 Relevant Provisions ..................................................................................................................................... 7 Approaches to Competition Law ................................................................................................................ 8 Clearly Defined Goals ................................................................................................................................. 8 General Application .................................................................................................................................... 9 Distinction between Size and Behavior of Firms ........................................................................................ 9 IV. Creating a Culture of Competition: The Role of the Supervisory Commission for Business Competition ....................................................................................................................... 15 Competition Advocacy .............................................................................................................................. 15 Promoting Market Transparency ............................................................................................................... 17 Country Experience ................................................................................................................................... 18 V. Developing Complementary Links: The Interface with Related National Policies .......................... 21 Small and Medium Enterprise Development ............................................................................................ 21 Consumer Protection ................................................................................................................................. 22 Regulatory Reform .................................................................................................................................... 24 Privatization .............................................................................................................................................. 26 Autonomy and Intra-Regional Trade ........................................................................................................ 26 VI. Going Global: The Internationalization of Competition Law ............................................................ 28 I. Economic Growth and Competition to invest, capital markets have weakened. With insufficient information disclosure and corporate The Case for Competition governance, lack of accountability and transparency in business decisions and At the outset of the conference, speakers made a government-business relations have become the strong case for fostering competition as a key tool order of the day. for economic development. The arguments laid out • Opportunities for broad participation in the are rooted in the belief that competition: economy have become limited due to various barriers to entry and preferential treatment. • encourages firms to focus on efficiency, and to meet consumer demand; The growth of monopoly and oligopoly power in • provides goods and services at lower prices, recent years was mentioned as a key underlying cause improved quality and with greater choice; of present economic difficulties. Large conglomerates • lowers risk of misguided investments, reduces and cartels increasingly dominated the Indonesian price distortions, and results in a more efficient business landscape. Under the right conditions allocation of resources; conglomerates could have been supportive of rapid, • fosters greater accountability and transparency equitable growth. In the case of Indonesia, however, in business decision making and in government- their dominance was often supported by government business relations; policies and regulations according them market power • strengthens corporate governance, generates and protecting them from competition. This produced opportunities for employment; and a pattern of growth that left Indonesia vulnerable to • provides governments with fiscal space to allow crisis and fueled popular resentment. them to provide adequate social spending, since it frees up resources which otherwise would be A senior government official remarked that one of used for state ownership or regulation of the outcomes of the economic crisis in Indonesia was economic activity. a strong domestic consensus in favor of change in the way business was done, by the government and Many in the audience agreed that despite progress, by the private sector. He suggested that these changes Indonesia is still far from achieving these goals. An would be significantly advanced by encouraging the important lesson emerging from the recent crisis is competitive process through market reform. It was that the lack of competition in the domestic markets recognized that without appropriate and predictable has imposed enormous costs on the economy. In fact, market-based policies, including competition law, the lack of adequate policy incentives and institutional however, it would be difficult for Indonesia to restore safeguards for competition has yielded: investor confidence, and revive investment flows, which are vital for sustained economic growth. • Concentration in product and service markets, Competition law in particular would help remove which has given rise to market power, resulting impediments to market competition and promote the in inferior products and fewer choices, to the development of a more transparent, fair and just detriment of consumers, especially the poorest society. who can least afford to buy expensive alternatives. The need to increase market forces would call for: • Ownership concentration has also increased, thereby enabling a few large firms or family • accelerating privatization of state-owned groups to engage in rent-seeking behavior and enterprises and corporate restructuring, wield political influence to shape public policy • widening the scope of deregulation, as well as in their favor. for further liberalization of both domestic as well • With fewer options for investors and fewer places as international trade and investment, and 1 • implementing effectively the Law 5/1999 them to place greater emphasis on competition policy, regarding Prohibition of Monopolistic Practices and today both the traditional form of natural and Unfair Business Competition (“Competition monopoly regulation and the idea that state ownership Law”) to remove impediments to market reform, was a good way to deal with natural monopolies has and the operation of the Supervisory Commission lost its foothold in Western Europe. In general, the for Business Competition (Komisi Pengawas result has been a demonstrable commitment to Persaingan Usaha “KPPU”), a newly created efficiency, growth, and opportunity, and this success independent government authority, to implement has in turn encouraged the growth of the free market and enforce the law. model. Understanding the Free Market Model Despite the success of the free market model in Western Europe and other OECD countries, some The free market model has come to be recognized as scholars continue to argue that a close integration of a superior alternative for economic development. business and government is needed to ensure firms History and theory have exposed the weaknesses of are large enough to compete effectively in the two other principal models, centrally-planned international markets. This argument claims that economies and social market economies. markets often fail to guide investments to industries that would generate high growth and governments The fall of communism revealed fragile and extremely must therefore “lead the market” by identifying under-productive economies that were the result of strategically important industries and a few large firms central planning. A major problem with centrally- that can act as “national champions” and “engines of planned economies is the repercussions of a wrong growth.” This view claims that a purely free market decision. One wrong decision by a central planning model hinders domestic firms’ ability to become body can, on account of the interdependence of the competitive because it makes it difficult for them to economy inherent in the plan, multiply and lead to coordinate their business policies and consolidate undesirable developments of the economy as a whole. operations through such strategies as mergers and In a competitive economy on the other hand, the acquisitions. individual enterprise bears responsibility for the results of its own mistakes. It suffers losses and may These arguments, although appealing, might require even have to cease operations if it cannot hold its balance. As one conference participant indicated: own. In a competitive economy, the market is a regulator and ultimately compensates for the • First, it is firms and industries and not nations inevitable mistakes by individuals. that compete against each other. • Second, governments through various economic Similarly, prolonged recessions, high employment, policies such as limiting competition, charging high inflation and marked inefficiencies in the 1970s higher prices to domestic consumers, and/or in Western Europe demonstrated certain weaknesses providing tax incentives for subsidies for exports, of the social market economy model. Western are in effect cross-subsidizing foreign consumers. European countries were concerned with the • Third, if firms or industries have not been continued poor performance of the regulated sectors exploited for economies of scale it is likely that of their economies, including several sectors that were this is because such economies may not exist. ‘regulated’ by public ownership. These publicly • Fourth, recent studies on the East Asian owned firms and state-regulated industries were economies demonstrate that a common extremely inefficient: there were few constraints on denominator in explaining higher than average spending, and they functioned with the security that growth rates is a high degree of inter-firm rivalry they would not be permitted to fail. The poor and exposure to domestic and international economic performance of many of these countries led competition. 2 Participants agreed that, in general, when the II. Implementing the Model: Instruments of weaknesses of alternative models are combined with Competition Policy the successes of the free market model, there is a near uniform acceptance of the latter. Indonesia The main instruments for nurturing market reform appears to have embraced this model and is working encompass several micro-economic, industrial and to adopt it. commercial policies such as economic regulation, privatization, international trade, foreign investment, Adoption will face difficulties, however. One and competition law. The application and interface conference participant pointed out that these between these and other related policies can have a difficulties may be exacerbated because of collusive significant bearing on industrial structure and the networks left over from the previous regime that competitive market performance of enterprises in both allowed rent-seeking, favoritism, corruption, and the private and public sector, and on economic nepotism (KKN). This is one factor among many that development generally. led participants to caution that the instruments of a market-based economy applied in more advanced and As with any policy intervention, the design and industrial nations, such as competition law, cannot implementation of competition policy market reforms be simply transplanted in transition countries. require the development of priorities in sequencing policies. This involves a series of trade-offs between goals. Policy Sequencing Participants at the conference offered differing views on policy sequencing in transition economies. Step by Step. One view was that countries should undertake reform in steps, by first addressing industry, investment and trade deregulation. Privatization would start early, but inevitably (at least has been the case in many countries), continue on a very long-term track. Competition law should be one of the last elements put in place. The argument that supports this view of sequencing says that gains in efficiency can be more effectively pursued through trade liberalization and deregulation, supplemented with privatization, than by competition law. Once a sector has been liberalized by way of introducing new competitors on the market, competition law and its enforcement can fill the primary role of maintaining competition as well as avoiding distortions caused by anti-competitive practices. Simultaneously. Another view claimed that competition law must be simultaneously undertaken with other efforts at liberalization and deregulation. Proponents of this view explained that competition policy consists of two segments, one is the public or 3 government restraints to competition, and the other permits a country to prevent its domestic firms from is the introduction of the competition law. Both abusing their economic power to the detriment of should be addressed simultaneously to have optimal consumers and of society as a whole. In fact, if a impact on the economy because alone each reform is country does not enforce competition law during a insufficient. transition period, domestic firms are much less likely to use the period for its intended purpose – to make Deregulation of the economy reduces domestic investments and take other steps that will make them barriers to entry, and economic liberalization will more efficient. Rather, they are likely to spend the expose domestic firms to international competition. transition period exploiting domestic consumers and Deregulation of the economy, however, may not be trying to create entry barriers that will prevent foreign sufficient to force competition into an industry that firms from entering after the transition. has structural restraints to competition such as economies of scale or a cartel. Similarly, privatization At the same time, participants did acknowledge that needs to be accompanied by a competition law since early introduction of a competition law can be without a consideration of competition privatization modified to allow for a competition law that is not may become a transfer of ownership from public to necessarily as comprehensive as the laws in countries private without any impact on competition. While that have a competition law tradition. Many implementing these reforms simultaneously may not participants advocated the view that competition be practicable, efforts should be made to introduce authorities may want to focus early efforts and them as closely as possible. Experience from countries resources on education of the public and businesses that introduced competition law but at the same time to help society adjust to a competition culture rather heavily regulated and protected their economy has than focus on law enforcement. demonstrated that the competition laws will be overridden. This was the case in Brazil, Thailand and Trade Liberalization South Korea. Some speakers argued that in economies where high Governments frequently criticize simultaneous levels of industry concentration prevail, such as reform, voicing concerns about opening themselves Indonesia, trade liberalization can to a large extent up too quickly to competition. Participants who solve anti-competitive behavior by exposing these advocated early introduction of competition law industries to international competition. In absence of suggested that these concerns could be resolved by barriers to trade, domestic monopolists or oligopolists allowing for a transition period for trade liberalization, lose their ability to exercise market power irrespective but stressed that there is no reason for a transition of actual imports’ share of the domestic market period before adopting and enforcing a competition because of the threat of potential competition. law. When a significant number of a country’s enterprises have such high costs and other problems Recent empirical studies cited by one conference that they would be quickly wiped out if efficient participant, however, suggest that the effects of trade foreign competitors were to enter right away, the liberalization on competition may be limited in some country may decide to have a transition period before circumstances. Examples were given of factors that exposing some of its markets to competition. Such a can impede the pro-competitive effect of trade policy does involve a delay in trade liberalization – liberalization: hopefully for a short, finite period of time – but it does not call for a delay in adopting and enforcing • The pro-competitive effects of tariff reductions competition law. may be diluted if import supply is not very elastic. • Trade policy is not comprised exclusively of tariff It is accepted that having a competition law does not policy: as countries liberalize import tariffs there in any way prevent the delay in opening trade, and has been an increase in non-tariff barriers such as 4 countervailing duties, antidumping duties and Due to the increasing globalization of today’s voluntary export restraints. investments and transactions, one way in which • An increasing share of economic activity relates countries help maintain a positive relationship to non-tradable goods and services. between FDI and competition policy is through • Inter-firm contractual arrangements and vertical cooperation and work-sharing among competition integration combined with high levels of agencies. It was pointed out that while it has often concentration in upstream/downstream markets been true that levels of investment are directly may prevent the development of new sources of correlated with a country’s regulatory ease of inputs or new distribution channels. investing, globalization of corporations has • In the absence of effective competition, domestic increasingly made this true. firms can raise prices up to the international prices plus transport costs and still keep out imports. One speaker cautioned that while FDI increases the • International cartels may divide up markets competitiveness of the host country and should be through price-fixing or geographic market-sharing encouraged, there is still a responsibility to examine agreements. investments to make certain that each FDI transaction • Finally, differences in income, tastes, and culture is bringing net benefits to the country. To do so, and in product safety, consumer protection, and competition authorities must be certain that FDI is technical standards may also separate markets. covered by competition law. For example, efficiency can be promoted in a specific market receiving FDI For these and other reasons, the speaker argued, if competition law is used at entry, through merger liberalized trade cannot effectively substitute for review and in the context of post-entry competition competition law. Other conference participants issues. Considerations should be balanced, however, accepted his arguments, and emphasized, however, and competition authorities must be aware that the that international trade and competition law measures competitiveness resulting from FDI may have should complement each other in promoting trade, undesired outcomes for development goals market access, economic efficiency, and consumer (employment, etc.). welfare. Promoting objectives of a liberal trade policy support the objectives of competition law and vice While inward FDI can contribute towards the versa. For example, trade liberalization and competitiveness of the host country’s market, at the competition policy together could prevent powerful same time it can disturb the performance of local business interests with monopoly power from creating firms. The speaker provided the example of MNC barriers to trade. activity which increase or decrease market concentration and this may in turn influence the Foreign Direct Investment performance of firms, industries and consumer welfare. Thus in determining how much FDI should Discussions also considered the importance of be encouraged, there is a need to balance the benefits competition policies in attracting foreign direct associated with FDI and the immediate costs it may investment (FDI). To this extent, participants have in terms of reducing economic welfare. indicated that to provide an environment that is conducive to foreign direct investment, first and foremost countries must seek to create competitive conditions in domestic markets. Further, an internationally-accepted policy mix of relevant instruments must be in place to reassure investors of the security of their investments. 5 Trade Liberalization, FDI and Competition Law: Two Case Studies An Indonesian participant offered two case studies as examples of the varying roles of competition law in industries that undertake liberalization. As the examples below demonstrate, in some industries competition law has a more important role as a necessary counterpart to trade liberalization and increased foreign direct investment than in other industries. Case Study 1. Automobiles In the past, the automobile and motorcycle industry was highly regulated and protected, with domestic content requirements and other restraints on the market. This industry was then liberalized, international competition and investment were allowed in. For example, local content requirements were abolished and the tariff rate brought down to an average of 60%. This resulted in increased imports that drove down prices of these products. For example, in the motorcycle market, imported motorcycles are selling at prices ten to twenty times lower than the average price of domestically produced motorcycles. Eventually, the price of domestic producers was forced down in order for them to compete with imported products. Case Study 2. Wheat Flour The Indonesian government agreed to open the wheat and wheat flour industry to free competition and lift restrictions in wholesale trade. The results have been positive. When BULOG’s control was eliminated the market took over without any significant discontinuity in supply to Indonesia. Smaller producers of wheat flour were able to secure their supply through the spot market. And, because wheat was easily obtained at the world market, the imported prices were driven to international prices. The market share of the two largest domestic producers dropped by almost 10% within one year after deregulation. The real price of wheat is currently falling, in part because of the declining international price of wheat and in part due to competition. Consumers have more choice to source wheat flour needs. The effects of liberalization, however, are compromised by anti-competitive practices that continue to pervade the industry. For example, the market for imported wheat flour is restricted to the large food-processing industry and the market for small industries and households is still controlled by domestic producers. The main difficulty for imported flour to challenge the domestic producers is the distribution network. The distribution network of wheat-flour in the past was controlled by BULOG through license, however, now that BULOG’s monopoly has been lifted most of the distributors have to rely on the dominant wheat flour producers. A recent study showed that there are vertical restraints such as exclusive dealing imposed by the producers on the distributors. Independent distributors are reluctant to jeopardize their relationship with the dominant firm because import supply continuity could prove problematic. Therefore, imported products are not able to compete effectively with the domestic producers unless it invests in building an independent distribution network. Anti-competitive behavior such as vertical restraints imposed by the dominant wheat flour producers on distributors can only be prevented by competition law. 6 III. Figuring out the Fundamentals: The Substance of Competition Law and Policy “Competition law only safeguards competition…” reminded one conference participant. “It is a tool for readying the future, not for remedying past inequities.” Competition law provides a regulatory framework to maintain and improve efficiency in markets, promote competitive pricing practices, and restrain price rises in markets where competition is affected by business Relevant Provisions practices (namely horizontal and vertical restraints (collusive price-fixing, input/output allocation, bid- Speakers at the conference emphasized that generally, rigging); abuse of dominant position (exclusion, the most important provisions in a competition law discrimination and predation); and mergers and address abuse of dominance, conspiracy and merger acquisitions. In many transition economies operations. competition laws also cover a broader range of anti- competitive government actions and policies, Agreement provisions are used to prohibit cartels and including discretionary grants of monopoly power and any agreements that unduly lessen competition. Two unduly restrictive government regulation. factors are often assessed to determine whether competition is unduly lessened or prevented: the Competition law by itself does not create competition, structure of the market to determine the degree of but when effectively applied, can counteract the market power, and the behavior of the parties to the dangers of private anticompetitive behavior. For arrangement to determine the agreement’s likely example, cartels may deliberately create artificial effect. The danger of cartels or cartel-like shortages, with the result that some consumers are arrangements is that they distort trade and create not able to obtain the product while other consumers societal inefficiencies. Although potentially more pay an inflated, or monopoly, price. Dominant firms unstable than monopolies, they risk to produce may abuse their market power through, for example, monopoly profits, engage in price fixing, and so forth. tying two products without a legitimate business Highest priority is accorded to enforcement of purpose. Entry to new participants may be blocked conspiracy provisions because of this potential great by firms with market power that erect protectionist harm to the economy. Using the conspiracy barriers. Competition law can address these provisions to prevent cartels and cartel-like anticompetitive practices. agreements results in an increase range of goods available to consumers, reducing prices and In addition to private anti-competitive behavior, decreasing barriers to entry. competition law can be used to counteract inefficient government regulation and promote efficiency within Abuse of dominance is invoked when there is a the private sector. Poorly designed government practice by one or more persons who substantially or regulation can contribute to the creation of private completely control a type of business, where the monopoly and can have effects similar to public practice has had, is having, or is likely to have the monopoly, including the lessening of economic effect of preventing or lessening competition opportunity. Government ownership and operation of substantially. Structural dominance alone is not the business entities can also have this effect. Likewise, focus of this provision. This provision can help to while competition law cannot redress the wrongs of ensure that abusive dominant domestic firms do not the past, it can be used to help redesign the system so impede the development of the competitive discipline that future industrial and economic growth derives hoped to be realized through the removal of trade not from undue privileges but from dynamic, efficient barriers and foreign competition. Participants and fair competition. provided examples of anticompetitive acts that this 7 provision can confront, including disciplining a firm Clearly Defined Goals that has market power in for one product and uses that market power to tie in another product used by A concern appreciated in transition economies in the same consumers, adoption of an incompatible applying competition law is the continued reliance product specification by a firm with the intent to on competition law to promote goals other than prevent or eliminate entry by a competitor, efficiency and consumer welfare. Yet a departure from acquisitions by a firm to prevent or eliminate entry the narrow objectives of competition policy or by a competitor, or predatory pricing. enforcement, seeking other goals such as the empowerment of small and medium firms, regional Merger Provisions are tools to discipline development, or ethnic interest protection, provide anticompetitive behavior before it takes place. Since for both government protection of inefficient firms a merger is potentially forever, these provisions allow and unnecessary intervention or regulation of business careful scrutiny for potential negative effects on the activities. economy. Specific criteria that is often considered when a competition authority is deciding whether or Conference participants emphasized that international not to allow a merger to go through is: the role of best practice suggests that efficiency and consumer foreign competition, whether the business of a party welfare should be the only goals of the competition to the merger is likely to fail, availability of substitute law and that other concerns should be dealt with either products, barriers to entry, effective remaining through exemptions or by examinations on a case- competition, removal of a vigorous and effective by-case basis. competitor, and extent of change and innovation. These factors are examined to decide if there will be One speaker drew attention to the fact that the a substantial lessening of competition post-merger. Indonesian competition law lists four objectives, some Often there is an efficiency exception where parties of which are objectives by themselves, whereas others can establish that the merger brings about gains in are actually a means to achieve a certain objective. efficiency, and the gains would not be obtained For instance, he explained that to achieve national without the merger, allowing mergers that would economic efficiency is an objective in itself, which provide net benefits for the society to be realized. can be achieved by means of preventing private entrepreneurs from engaging in monopolistic Approaches to Competition Law practices and/or unfair business competition. The failure to distinguish between ends is problematic, as Conference participants made three principal it may give rise to misinterpretation of the law. More recommendations for a consistent approach to importantly, listing several objectives may render the competition law: law less effective since there are many tradeoffs • clarity in definitions of the goals of competition between the different goals. law, • universal application of competition law to all In most countries the primary objective of the players, and competition law is consumer welfare and efficiency. • clear division between market share and anti- In some instances countries have permitted other competitive business conduct. objectives to be considered. When these objectives, however, have been allowed, they are narrowly defined or otherwise protected by strict procedures. “It is almost a maxim: if the institute [competition commission] were to fully accomplish its mission, its role would be controversial. . . . In one word, it An Australian speaker explained that Australia has would know it is doing a good job if no one liked it.” an authorization procedure that provides an exemption - Douglass C. North, cited by a participant from the trade practices act for conduct that would result in a net public benefit. The Australian 8 Competition Commission (ACCC) may, upon General Application application or on behalf of a corporation, grant an authorization to the corporation to acquire shares or While the previous section acknowledges that there assets or to give effect to any other agreement which may be some room for exceptions to efficiency goals, may substantially lessen competition. An participants emphasized that these exceptions must authorization is only granted when the ACCC is also be subject to a strict economics test: that a net satisfied, in all circumstances, that the relevant public benefit result, for example. Otherwise, and as agreement or other conduct is likely to result in a a general rule, competition law should be applicable benefit to the public which would outweigh the in all circumstances and to all parties. There is a detriment to the public constituted by any lessening tendency in many countries with nascent competition of competition – that is, the agreement or conduct laws to attempt to “carve out” exceptions for would likely to result in a net public benefit. governments, state-owned enterprises, or other major sections of the economy. Speakers at the conference To ensure that the exception is only granted in urged Indonesia to follow acknowledged best meritorious circumstances the authorization practices where no one is privileged to be outside the procedure is a public process. An application for reach of the law. authorization is placed on a public register and the ACCC invites interested parties to make submissions A Peruvian participant offered a striking example of to it. The ACCC then issues a draft determination how the competition agency in Peru (INDECOPI, and any interested party is entitled to call for a National Institute for the Defense of Competition and predetermination conference before a final decision Protection of Intellectual Property) has demonstrated is issued by the ACCC. Any interested party may then its commitment to universal application through its appeal that determination to the Australian willingness to investigate any allegation of unfair Competition Tribunal for a review of the competition. Recently, upon request from several determination. private companies, INDECOPI heard complaints lodged against four ministries, even filing against the Allowing Net Public Benefit Exceptions: ministry it reports to and on which it depends for An Example from Australia budgetary support. In April 1999 the ACCC granted two authorizations In light of the importance of universal application, to cement manufacturer, Adelaide Brighton Limited one speaker argued that the Indonesian law should (ABL), as part of a restructuring of the cement have made it clearer that the primary objective of the industry. After extensive market inquiries and submissions from over 30 interested parties, the antimonopoly law is to protect and maintain free and ACCC concluded that the restructuring would open competition by explicitly preventing both the provide a net public benefit because of three factors: state, state-owned enterprises and private firms from restraining domestic competition and trade. In other 1. the increased independence of ABL from words, the law should have stated clearly that the other cement and concrete companies in primary objective of competition law is to prevent Australia would likely increase its competitive behavior; both private firms and state-owned enterprises from 2. ABL would be strengthened as a engaging in anti-competitive behavior and the competitor by having access to the government from intervening arbitrarily in the market international experience and financial by issuing policy-generated barriers to competition. strength of its new controlling shareholder; and Distinction between Size and Behavior of Firms 3. ABL would be able to rationalize its activities which should lead to lower prices for consumers. Speakers adamantly stressed that in enforcing the law, international best practice also advises that the new 9 agencies should approach businesses with a focus on Competition Law and Conglomerates behavior based on actual exercise of market power, not on the mere holding of a position of dominance Situation:There is a view that conglomerates or monopoly because market share does not contributed to the undesirable industrial necessarily indicate anti-competitive practices. concentrations, excessive diversification, and lack of governance and transparency. A number of participants pointed out that one of the Myth: Competition law should be used to break apart problems with the Indonesian competition law is that the conglomerates because of this negative influence it fails to make a distinction between anti-competitive they have had in the past. business conduct on the one hand and the undesirable market structures on the other. Various types of anti- Reality: Although these perceptions of the negative competitive business conduct are clearly identified influence may be valid, the problems they raise in the law (price fixing, market divisions, boycotts, cannot be resolved through the enforcement of a competition law. etc) yet in the same chapters that define the anti- competitive conduct certain market structures Conglomerates are not anti-competitive forms of (monopoly, monopsony, oligopoly, etc) are explicitly business as such. Many are efficient and do not banned. This failure to make a clear distinction abuse their position by engaging in anti-competitive between anti-competitive business conduct and conduct. The focus should be on competitive market structures, specifically by prohibiting both behavior, not on organizational form, market share, or industrial structure. certain types of anti-competitive conduct and certain market structures, is a major shortcoming that falls short of international best practices. It was agreed that Participants encouraged the new enforcers to design this lack of distinction may impede, rather than a legal test for intervention that focused on more than promote, free competition. concentration. One speaker offered a comparison from Australia where the legal test is a substantial lessening Questions from the floor raised the concern that the of competition, a forward looking test addressing new enforcers, concerned about high concentration competitive dynamics, not just market concentration. ratios, might be tempted in good faith to intervene Australia has chosen not only to allow concentrated directly in concentrated markets to reduce the market markets to remain that way so long as there is no anti- share of large firms. Respondents said that this competitive behavior, but has even allowed mergers practice would be a mistake, suggesting that a better and joint ventures of firms with high market shares starting point would be to examine the entry when there were significant safeguards in place to conditions and arrangements and mechanisms likely protect competition. An example is in 1997 the ACCC to lead to anti-competitive business practices – allowed a joint venture between CSR and Mackay namely, how firms acquire knowledge of a rival’s Refined Sugars to combine their sugar refining, policies and products, their capacity to influence distribution and marketing operations. CRS and interactions through trade and business associations, Mackay were the two largest sugar refineries, but the and their control of documentation and information ACCC was satisfied that imports would impose a channels. sufficient competitive restraint. Concern about concentration is particularly worrisome in high technology industries. Because of their unique characteristics, and the importance of encouraging innovation, Canadian and other participants urged the Supervisory Commission for Business Competition to proceed cautiously in these areas, see box below. 10 Understanding Differences: Competition Law in High Tech Industries The unique economic characteristics of the information economy and importance of innovation require that competition law authorities use caution when intervening in high technology industries in order to promote future investment, research and innovation. This does not mean that competition law does not have a proper role in high technology industries, but that it should be handled with care. For example, eliminating restrictive or exclusionary contracts, or removing unbundling or tying agreements, is generally preferable to compulsory licensing, the mandating of access to a network or any other expropriation of intellectual property, as the former are less intrusive. Divestitures and break up orders for ongoing business can be even more draconian in these industries. The Supervisory Commission for Business Competition will have to determine their own legal test, based on the particular needs of their country. The question and answer session, however, did make clear that the principles highlighted above should be considered carefully before any test is designed or intervention occurs. 11 Advice from Germany on Agreement Provisions: Cartels The market can only fulfill its functions if competition between the various suppliers is effective and not prevented by agreements, i.e. the formation of cartels. There are many possible forms of cartels with which competing enterprises can restrict competition through contracts or decisions. The most serious form of a restraint on competition is the price cartel, when competing enterprises agree on sales prices or price increases. Rather than resorting to direct price-fixing, competitors may seek to accomplish their purpose by other forms of cartels, including situations where competitors enter into quota and allocation cartels, e.g. agreements among competing enterprises on production or sales ratios, or division of sales areas, with an obligation not to compete with each other. Territorial divisions, for example, are considered to be “better” than price-fixing because they have the same result (to eliminate competition) and they almost guarantee that all participants will receive a satisfactory share of the market. One of the results of these type of agreements is uniform pricing. The problem with these agreements is that they protect less efficient producers and keep firms from expanding. Cartels are designed to secure a higher profit for the participating enterprises than would be possible under competitive conditions. Cartels will seldom function as efficiently, precisely, or reliably as a single-firm monopoly, but still can result in the development of “monopoly returns” which distort the general distribution of incomes and hence prevent competition from exercising its steering function. Using the conspiracy provisions to prevent cartels and cartel-like agreements results in an increased range of goods available to consumers, reducing prices and decreasing barriers to entry. Conditions that favor cartels include barriers or lags to entry, including sunk costs and inelasticity of demand at the competitive price. High costs of entry are barriers if new entrants must bear a higher burden than existing participants. Slow speed of entry may encourage cartelization, even if it only allows existing firms to capture short-term gains. Other barriers to entry can include cost and demand disadvantages, including patents and other legal licenses, scarce resources, and product differentiation/consumer loyalty. Other conditions that favor cartels are low costs of organization and policing – the fewer the participating firms, the easier they are to organize. Infringements of the ban on cartels are prosecuted by the competition authorities. Since cartel behavior unambiguously undermine the objective of providing consumers with competitive prices and product choices, violation carries heavy fines. In Germany, these can be up to three times the profit earned on illegal transactions. Fines to the value of many millions of Deutsche Marks have been imposed for illegal cartel agreements, for example in the linoleum and building industries. The German authorities also have the power to issue injunctions (forbid restrictive practices), to declare contracts and decisions invalid or call for an amendment (for example in cases of misuse of cartel agreements) and to give approval for certain agreements or decisions (for example for certain cartels.) Due to the egregiousness of cartel behavior, the German Cartel Office (and regional offices) can act autonomously in examining cases of infringement of the cartel legislation. Since centralized and well-organized cartels are easier to detect, cartels are often decentralized and informal and thus harder to discover. Frequently, information from consumers or competitors is the initiative for action by the cartel authorities. Sometimes, the German authorities will allow cartels to exist. Application for permission must be made to the cartel authorities, and after very extensive information gathering and examination an exception may be granted. 12 The Canadian Experience with Abuse of Dominant Position Provisions The abuse of dominant position provisions of the Canadian Competition Act (“the Act”), like others, are premised on the principle that the public interest is best served when markets are competitive. These provisions address conduct by a dominant firm which prevents or impedes market access though the creation or raising of barriers to entry. Mere structural dominance is not, in and of itself, the focus of the abuse provisions. Abuse of dominance under the Act requires a practice of anti-competitive acts by one or more persons who substantially or completely control a type of business, where the practice has had, is having, or is likely to have the effect of preventing or lessening competition substantially. The Act contains a non-exhaustive definition of anti-competitive act, which includes (i) the preemption of scarce facilities or resources required by a competitor for the operation of a business, and (ii) the adoption of product specifications that are incompatible with products produced by another person. In determining whether an act is anti-competitive, the analysis must take into account “the commercial interests of both parties served by the conduct in question and the degree of restraint or distortion of competition which exists.” A consistent theme in the enumerated anticompetitive acts is that a dominant firm engaging in predatory, exclusionary or disciplinary behavior against one or more smaller rivals. Horizontal arrangements, however, may fall within these provisions as well. If the Competition Tribunal finds an abuse of dominance, it may issue an order prohibiting the practice of anti- competitive acts or, if it concludes that a prohibition order is not likely to restore competition, it may make any other order that is necessary to overcome the effects of the practice of anticompetitive acts, such as an order that assets or shares be divested or that the terms of a contract be rendered unenforceable. These provisions are particularly important in the context of a deregulated and privatized business environment, and can be instrumental in assisting in the transition from regulation to deregulation. Specifically, they help to ensure that dominant domestic firms do not impede the development of the competitive discipline hoped to be realized through the removal of trade barriers and foreign competition. Provisions similar to the Canadian abuse of dominant position provisions can be effective tools to address issues of access to essential facilities. For example, it may not be sufficient to simply implement a policy of deregulation without ensuring that entry on competitive terms is possible. The essential facilities doctrine provides that persons who control a facility essential to entering a market must allow others access to that facility on reasonable commercial terms. This doctrine is becoming increasing important as Canada’s telecommunications and other industries continue to be deregulated. Two of the themes underlying the abuse of dominant position provisions can provide useful lessons for Indonesia: balance and caution in enforcement. The abuse of dominance provisions strike a balance between the need to discourage practices that harm competition and the need to avoid imposing burdensome regulatory costs or requirements upon Canadian industries which impair their ability to compete in international markets. For example, the abuse of dominance provisions of the Act compels the Tribunal to consider whether the lessening of competition is attributable to the superior competitive performance of the dominant firm or firms. It does not call upon the Tribunal to balance superior competitive performance against the effects of anti-competitive acts , but rather to consider superior competitive performance as a factor to be considered in determining the cause of the lessening of competition and not as a justifiable goal for engaging in the anti-competitive act. Abuse of a dominant position can do great harm to an economy. At the same time, Canadian enforcers recognize that high technology industries undergoing rapid transition may have unique economic characteristics that require careful consideration of the implications for future investment, research and innovation. Thus, caution in application is urged as well as an incremental approach to enforcement remedies is taken for these high technology industries. 13 Advice from the United States: Designing Merger Policy One participant used the American experience to offer three suggestions for the development of merger policy. First, regulation must be adapted to the type of transaction being examined: merger policy must reflect the type of merger being considered. Conglomerate mergers, he suggested, should not be a major concern. Conglomerate mergers usually involve a product extension, such as a cigarette company buying a food processor, or a geographical market extension, a bakery in Jakarta buying a bakery in Denpasar. Conglomerate mergers often have no direct effect on competition unless it can be proved that, but for the merger, the cigarette company would have begun processing food or the Jakarta bakery would have begun producing in Denpasar. On the other hand, conglomerate mergers offer the fewest opportunities for an increased economic efficiency. Conglomerate mergers can be thought of as low cost/low benefit mergers, so it is best not to use costly review and enforcement procedures to stop them. Vertical mergers, which involve integration forward or backward in the chain of production or distribution through the acquisition of a supplier or customer, do not reduce the number of economic actors in a particular market but could change patterns of industrial behavior. Given the great potential for increased economic efficiency and a limited capacity for economic harm, however, this treatment is viewed as a policy mistake that protected competitors instead of competition. Thus, together with conglomerate mergers, in conducting the balancing test of efficiency versus reduced competition, the evaluator should likely err on the side of efficiency. Horizontal mergers, however, raise concern because of their direct impact on competition and are generally viewed with great strictness by American judges. Second, there is a general trend for markets to be defined more broadly and thus make it easier for mergers to pass inspection. American policymakers recognize that market definitions and predictions of future efficiencies, costs, prices, outputs, and barriers to entry, are relatively crude and unreliable. To counterbalance this tendency, markets are now defined more broadly, and the merging parties must account for a larger share of a more concentrated market before the merger is prohibited. Third, authorization or prohibition of a merger is often a function of barriers to entry in the market. In the United States, if a merged US company can show that barriers to entry are low, the merger will likely be permitted. New entry increases competition in the future. The analytical problem is to define socially-harmful barriers in ways that can be measured concretely: for example, the economies of scale or superior efficiency of a merged firm may deter the entry of other producers, but Americans usually try to promote these barriers anyway. Excess capacity or dominance over an irreplaceable raw material or distribution network as a result of a merger will almost always lead to that merger being invalidated. Other entry barriers are more ambiguous in their anti-competitive effects: consider asset-specific investments (sunk costs) such as extensive advertising, and an extensive product differentiation that deprives new entrants of niche products that would enable them to gain a toehold in the market. American economists agree that almost all of the barriers to entry created by government can be safely eliminated, and thus competition authorities may want to advocate deregulation. While the American experience has shown that case-by-case determinations are often the best way to deal with the complexities involved, the experience has also shown that competition authorities should also plan their policies carefully. Fair warning should be given of the kinds of mergers that are permitted and prohibited, so that companies can plan for competition-enhancing mergers and avoid the inefficiencies of undertaking mergers that will only be struck down later. American enforcement authorities have done this through the merger guidelines, and these should be consulted when drafting the merger regulations called for by Indonesian Article 28(3). Compared to agreements that restrain trade, mergers involve a more complete and permanent integration of the parties’ economic activities. Internal pressures (cheating within a cartel) often force the disintegration of an agreement among independent firms, but a merger is potentially forever. Hence getting merger policy right is crucial for a sound long-term competition policy. While the complexities of merger review suggest that a certain amount of uncertainty and ferment is perhaps natural during the Competition Commission’s early days, it is important for the Commission to provide guidance through guidelines at an early date. In the end, as one speaker commented, Indonesia should be envied for the fresh start it has in making merger policy. 14 IV. Creating a Culture of Competition: The Role law enforcement. Law enforcement might be a costly of the Supervisory Commission for Business and risky option. Participants placed strong emphasis Competition on the fact that in environments where there is still the potential for governments to shift convictions from The Supervisory Commission for Business interventionism to open markets, a promising path Competition is the first independent regulatory agency early on for competition agencies is to concentrate in Indonesia’s history. Hence, its effectiveness will less on traditional law enforcement and more on depend upon its capacity to: creating a culture of competition through alternative activities. • overcome past practices involving close dealings between government agencies and business which The alternatives to traditional law enforcement were favor a few large firms; classified into two complementary categories. • identify the forces and policies that affect competition in markets, and address competition • Advocacy : promoting competition values by issues in a technical, transparent, non-intrusive identifying government measures affecting and fair manner; competition and offering advice on whether they • develop an effective advocacy strategy for public are compatible with the operation of the markets. policy measures affecting competition; and • Transparency: Promoting competition through • build the Supervisory Commission for Business transparent enforcement of competition law. Competition on the basis of stability, independence and technical merits. While the Supervisory Commission for Business Competition will have to find its own methods of If these goals are accomplished, the Supervisory promoting transparency and conducting advocacy that Commission for Business Competition will have the are uniquely adapted to the Indonesian situation, potential to exercise significant influence on speakers presented guiding principles and country important policy matters that affect market structures experiences that offered useful starting points. and business conduct in Indonesia. Competition Advocacy At the same time, the general consensus at the conference was that promoting competition in still Government measures that relate to and potentially regulated markets such as Indonesia is an enormous conflict with competition law-policy include tariffs, task. Discussions from the floor led to the conclusion subsidies, antidumping, government procurement, that success depends largely on how well the concepts technical standards, intellectual property rights, and and values of competition are interwoven in the state-owned enterprises. These policies typically aim policymaking process and among the population. to protect domestic firms and restrict market access and foreign rivalry, so a competition goalkeeper can Traditional law enforcement – successfully employed be part of the government structure to scrutinize and in countries with significant market tradition – have when necessary, temper, these policies. Examples helped deter anticompetitive practices and thereby provided by participants of the scope of measures to maintain the competitive process. However, the be examined included exceptions granted, taxes, complexities of law enforcement seem to warn government procurement and other discriminatory cautiousness in Indonesia given the unique problems policies. of its transition to competitive markets. During a transition period many cartel activities and Speakers suggested that the Supervisory Commission abuses of dominant position may be lawful in for Business Competition should carefully assess this emerging markets because of protectionist measures. constraint before embarking with active competition Advocacy contributes to dismantling these barriers. 15 Resolving battles against more powerful government Supervisory Commission for Business Competition agencies and well-organized groups, however, is best qualified to provide expert and well-informed requires committed institutions and political will. analysis on competitive issues within the government. Competition law can be used to conduct a Advocacy Areas comprehensive review of existing laws and regulations, develop a consistent set of criteria for Activities may include the review of possible sources their evaluation, and identify and evaluate the net of public restraints on competition to provide advice benefits that they impose. Using competitive in three principal areas: trade policies (tariffs and principles to review legislation that impedes non tariff barriers, antidumping duties, competition can provide an important step towards countervailing duties and discriminatory export practices); investment policies (exclusionary lists, eliminating unnecessarily burdensome regulations. It ownership restrictions, licensing requirements); and can also provide the government with access to regulation (sectoral power, transportation, consistent, high quality advice in evaluating the costs telecommunications; natural monopolies). and benefits of proposals for changes to commercial regulations. A Canadian participant pointed out that competition advocacy occurs in Canada where the Bureau often Review of Business Legislation acts as competition advocate in a less formal but In order to strengthen competition, participants important manner. The Commissioner is often called across the board made a strong case for the upon to provide advice on the competitive market Supervisory Commission for Business Competition implications of policy options as they are being to review of existing laws and regulations. With the considered by politicians or government officials. development of institutional mechanisms, the public Such advice can range from oral advice by Bureau or net benefit of existing or even proposed legislation officials to officials in other departments to Reports can be evaluated from the perspective of its impact on impeding or promoting competition. of the Commissioner to Cabinet Ministers, as well as testimony before House and Senate Committees. Advice has been provided in this fashion on matters An Indonesian speaker highlighted the fact that the such as financial sector deregulation, airport Supervisory Commission for Business Competition privatization, telecommunications and broadcast is well-equipped to conduct competition advocacy: policy, electronic commerce and foreign trade/WTO an important feature of Indonesia’s competition law issues. The speaker suggested that the Supervisory is that it allows the Supervisory Commission for Commission for Business Competition should Business Competition to provide suggestions and consider filling a similar role as Indonesia deregulates advice on government policies and measures that many of the same industries. promote anti-competitive practices or inefficiency. Since law enforcement requires anyway that the A word of caution on competition advocacy through Supervisory Commission for Business Competition the provision of advice was offered. Such advice is assess whether restraints on competition lead to not risk free. The Canadian speaker explained that it reductions in consumer welfare or economic is crucial to proper enforcement of competition law efficiency, such a standard could be equally applied that the official charged with its enforcement remain to numerous government-based anti-competitive independent from the political milieu. Many of the barriers and policy actions, especially those likely to enterprises affected by the decision of the competition conflict with the competition law, a central priority authority will have significant economic and political for the Supervisory Commission for Business influence, particularly during the transition period Competition. Given its broad authority to investigate from a market characterized by regulation or state- and its ability to monitor commercial conduct, the owned enterprises through the privatization and 16 deregulation process to a market-based environment, in such fields as commerce, contract and bankruptcy the ability to exert influence is strong. The focus of a and then ensures the functioning of the market framework law must be the market and not particular mechanism by adopting competition and its related incumbents. The Canadian Commissioner, for laws. This first layer increases the legal stability of example, has recently come under attack for being business entities and dealings, providing a level too close to the political leaders in the sense of doing playing field for players in the marketplace. The most their bidding under the guise of enforcing the Act. important role of the competition agencies in Whether valid or not, such attacks illustrate the risks promoting market transparency at this level is to associated with the informal advisory role of the ensure that the competition law clearly prescribes Commissioner. relevant provisions. The second layer encompasses the policy related to Words of Experience the legal framework of the competition law. This layer “Embark on the process with open eyes, moving can further be divided into three sub-categories. from stable state monopoly or regulated environment is messy – competition is messy, markets are messy. • The first subcategory is the policy to elaborate Some old and familiar enterprises and practices will substantive rules in legislation, such as guidelines, not survive, expect dislocation. Social policy the publishing of decisions on individual cases bargains between industry and government are likely and advocacy activities. This subcategory in place and will have to be dismantled.” provides firms with a concrete idea of what kind “The impact on prices will not be uniformly down. of practices fall within the legislation or on what When the regulatory matrix of cross-subsidies is conditions they are prohibited. unwound and consumers begin paying the market • The second subcategory is the policy increasing value of what they consume, some will pay more. visibility of legal proceedings to prohibit unlawful Telecommunications and electrical energy sectors practices. Activities include publishing the rule are good examples of systems involving cross subsidization. The urge to speak only in terms of concerning law enforcement process, making lower prices to consumer will be great and must be clear to the public how the law is applied in tempered with the notion of paying market value.” practice, and other factors related to due process. • The third subcategory is vigorous enforcement of the law. A law without enforcement would be Promoting Market Transparency worse than no law, due to its negative announcement effect on the market. Perhaps the Competition policy is a multi-layered policy, and most commonly cited way of encouraging suggestions from the conference on transparency- transparency at this level is publishing guidelines, enhancing activities that the Supervisory Commission speeches, bulletins, advisory opinions, etc. – in for Business Competition could undertake were short, informing consumers and businesspeople addressed according to these layers (i.e., the law itself, of the expectations and actions of the competition policies filling the gaps of the law, and policies to authorities. A word of caution is necessary: counteract the interventionist nature of governments.) informing consumers should be balanced with the Conference participants suggested that in formulating need to protect legitimate business interests. an agenda to promote transparency each layer of Information should be carefully considered before competition policy be included. An ideal transparency the decision is made to make it public. agenda would address each level individually and equally. The third layer contains the policy to counter interventionist policies, described above in the The first layer encompasses the legal framework that competition advocacy section. The clear promotes a market economy by enacting legislation responsibility of the government on the need for and 17 efficiency of interventionist policies is the key to players. These meetings are in addition to traditional getting support from the market, and as a result, to intensive fact-finding and examination. Moreover, all enhancing transparency. Through competition activities of the Federal Cartel Office are reported at advocacy, the competition agency can assist the regular intervals, giving account of the work of the government get these policies right. Office and providing information on the situation and development in its field of operation. Promoting Transparency at Each Layer Canada Layer 1. The Legal Framework The discussion at the conference on Canada used the • Are relevant provisions of the competition Canadian law and enforcement experience to law clear? demonstrate themes of balancing competing interests, Layer 2. Policy Related to the Law striving for transparency and accountability, and enhancing process and substantive decision-making • Elaborate substantive rules in the law: certainty. guidelines, publishing decisions, etc. • Increasing visibility of legal proceedings: Canada has a compliance-oriented approach that has promoting due process been a hallmark of the Canadian competition policy. • Vigorous enforcement of the law This approach proceeds on four assumptions: that Layer 3. Interaction with Other Laws most business people comply with the law; that a more adversarial approach has a chilling effect and great • Review of economic regulations and costs; that effective enforcement can often be exemption systems from competition law, achieved through a consultative approach by making conducting advocacy activities it clear that the legal proceedings will be commenced when cooperation is not forthcoming or when undertakings are not honored; and that increasing Country Experience certainty of process and substance is better for all concerned. The conference participants drew on their own country’s experience with promoting market A significant part of Canada’s Program of Compliance transparency to offer suggestions of practices that is communication of the Bureau’s views, policies and might be useful to Indonesia. Insights and lessons resolution of cases. To that end, the Bureau issues, from Germany, Canada, Japan, Taiwan and Peru are among other things, news releases in respect of provided here. important decisions, information bulletins, enforcement guidelines and speeches by the Germany Commissioner. These steps are designed to promote certainty and increase transparency by informing the The German Cartel Act provides various roles public. competition authorities and competition law play in promoting market transparency. The Act can apply Enforcement guidelines, for example, are at the heart to the State as well, such as to the acquisition of shares of the educational side of the Program of Compliance. by the Federal government. One way in which the They are intended to help build information competition agency promotes transparency with the dissemination for the public as well as ensure internal public and business actors is by holding discussions consistency in the application of the Act. The during investigations with the business world and the Canadian participants suggested that in their general public to ensure that as much information as experience, enforcement guidelines were of utmost possible is available on the activities of the accused importance, and that the Supervisory Commission for 18 Business Competition should design guidelines experience in the field or with specialized expertise specific to Indonesia. (such as economists) are often brought in to perform thorough field investigations. Ensuring transparency of the investigative and enforcement functions of the Canadian Bureau by the The Program of Compliance is not without its critics publishing of normative standards is also an effective however, as the participants explained. Critics argue means of holding accountable the exercise of the that the informal compliance-oriented procedures decision-makers discretion, while maintaining a may, in a worse case scenario, permit certain forms flexible system that facilitates negotiated solutions of unchecked and even coercive conduct by the to potential competition law problems. Commissioner and the Bureau in their dealings with parties. They suggest the broad discretion exercised While guidelines, speeches, information bulletins, by these bodies may also run counter to the principle backgrounders about cases, etc. are all made public, of treating like cases alike, by permitting inconsistent advisory opinions and confidential guidance are not treatment of arguably similar cases. Many others in usually made public to encourage greater use of the the Canadian business and legal communities have program. Highly sensitive commercial information recognized that there is not any track record of these that is submitted to the Bureau under the program of concerns materializing given the objective and compliance is statutorily protected so that firms feel professional manner in which the bureau conducts comfortable that the information they submit will its investigations. Moreover, the approach offers remain confidential. At the same time, information expeditious and less costly resolutions in many that does not need to be protected and can promote instances. consumer and business understanding of the rules is always published. For example, advisory opinions are Japan often published subsequently in generic form since they can provide important information regarding the Like Canada, the Japanese Fair Trade Commission reasons for the Bureau’s principal conclusion. This (JFTC) is developing tools to increase transparency practice of publishing information that may be of by better informing the public of the Antimonopoly interest or help to consumers and businesses reflect a Act (AMA). One way in which the JFTC enhances balancing act with promoting transparency and transparency is by elaborating on the substantive rules ensuring confidentiality that encourages businesses of the AMA through guidelines. More than twenty to use the program. sets of guidelines have been published to date. These are, for example, guidelines on distribution and Another commitment to transparency can be seen in business practices, on intellectual property rights, on Canada’s numerous tools available to effect resolution government procurement to avoid bid riggings and where there is noncompliance, particularly in its clear on mergers and acquisitions. In making out these mandates for gathering information during guidelines, the JFTC seeks views and opinions of investigative visits. The Program of Compliance interested parties, whether residing in Japan or abroad. facilitates fact-gathering by providing an incentive In addition to the guidelines, the Japanese consumer for parties (i.e. speed, less expense and certainty) to and businesspeople are informed to the extent that provide as much information as possible voluntarily. legal measures taken by the Commission against Apart from the formal process to gather information, violations are made public on the same day of the Bureau makes extensive use of “field interviews” measures. Measures to be published basically contain in which it telephones or meets with members of information on the names of violators, their practices, industry to gather views on issues such as market and provisions of AMA applied to them. The JFTC definition, barriers to entry and effective remaining also publishes major consultations and replies to competition. To increase impartiality and individual consultations, as well as publishes an accountability, outside people with significant annual report on enforcement activities. 19 Another way in which the JFTC promotes formed to investigate and examine the existing “other transparency is by increasing the visibility of laws” that provided a legal basis for exemption from enforcement proceedings of the act. The AMA clearly the FTL. Through study groups and meetings with prescribes relevant provisions involving investigation the relevant administrative agencies 122 provisions and hearing procedures to respondents, types of legal in 74 laws were recommended for amendment, of measures than can be taken to violators and which a significant portion were undertaken. (The organization and powers of the Commission. FTL has since been amended to provide that the FTL Investigation procedures specify the mandate of the will not apply to acts performed in accordance with Commission and provisions securing the rights of a other laws only if the other laws do not conflict with respondent are prescribed. In this way, transparency the legislative purpose of the FTL). in enforcement proceedings is guaranteed both ex ante and ex post. The AMA also prescribes that the JFTC The Deregulation Task Force, established in 1996, is an independent administrative body. This systemic was more ambitious than the previous task force with nature of independence helps ensure the enforcement its goal to carry out a deregulation program aimed at of the Act exactly in accordance with its provisions, accelerating the deregulation process. The task force thereby indirectly contributing to greater was responsible for enhancing the understanding of transparency. international trends, coordinating and conducting sector specific research, issuing a white paper and Taiwan implementing the Commission’s action plan. Twelve markets dominated by state enterprises were targeted Taiwan’s Fair Trade Commission has played its largest by the task force for review. The initial findings were role in promoting market transparency through its submitted to Taiwan’s Cabinet by the FTC. The monitoring of the privatization process and through Cabinet then incorporated these reform plans into its its role in deregulating industries and has had regulatory affairs plans for consideration, and experiences similar to those that the Supervisory requested that relevant administrative agencies Commission for Business Competition may conduct further reviews and initiate implementation encounter. plans. A Taiwanese participant stressed that as the Peru competition law enforcer, one of the most important duties of the Commission has been to monitor the Innovative ways in which the competition agency in operation of the newly privatized enterprises to ensure Peru (INDECOPI, National Institute for the Defense that these enterprises do not abuse their residual of Competition and Protection of Intellectual monopoly powers. The Commission has also helped Property) promotes market transparency include, for advise administrative authorities when drafting the example, its standardization and quality control regulatory requirements of their industry. This ensures service. This service is responsible for accrediting that the regulatory requirements of the administrative labs engaged in product certification, fostering the authorities are consistent with competition goals. active participation of the private sector in drawing up technical norms, and becoming the custodian of In the deregulation arena, the Commission established national weights and measures standards. In addition, two task forces to identify the potential competition INDECOPI has created strategic alliances with public issues arising from newly deregulated markets, the and private partners to ensure the effective transfer 46-1 Task Force and the Deregulation Task Force. of institutional know how to overall civil society. Since the Fair Trade Law (FTL) did not grant across- Moreover, this transfer has the capacity to be very the-board exemptions, and instead only exempted wide reaching since INDECOPI has decentralized certain firm behavior allowed by “other laws,” the offices which ensure wide access to INDECOPI’s 46-1 Task Force of the Fair Trade Commission was services. While INDECOPI follows a different model 20 from others, its enormous success suggests that the V. Developing Complementary Links: The Supervisory Commission for Business Competition Interface with Related National Policies may want to make a close examination of the model. The interface of competition law with other national laws and policies can be a difficult area to navigate. “There will be tension and mistakes along the way. In most cases, competition law can play a vital role People will complain. While everyone says they want the benefits of a competitive marketplace, as in ensuring that other economic policies contain consumers they may well continue to want complementary economic objectives. In other cases, government to protect them from the consequences however, competition law can be a dangerous tool of bad decisions. Expect this.” since, if not designed properly, it can work against competitive goals. Proceeding with the assumption that the goals of competition law should follow best practice and remain restricted to efficiency and consumer welfare, a significant portion of the conference was dedicated to the intersection of competition law and other related national policies. The following sections explore the role of competition law as it interacts with small and medium enterprise development, consumer protection, investment, deregulation, privatization and decentralization. Small and Medium Enterprise Development Discussions on the interface of competition law and other laws necessarily raised concern at the conference that some Indonesian citizens may have confused the objectives of competition law with those of empowering small scale enterprises (SSEs), and perhaps even medium scale enterprises (SMEs). The Indonesian law explicitly exempts SSEs from various prohibitions, and appears to provide preferences to foster business for ethnic firms. Participants found this exemption difficult to reconcile with the thrust of the new market oriented SME programs. Cartel activities, it was pointed out, may result in monopoly behavior, which could negatively affect access and prices in these regions and markets. By taking firm and consistent action against any anticompetitive behavior by dominant firm or a number of dominant firms, the competition law should be able to ensure a level playing field for both small and medium scale enterprises. A participant showed that such a stance would not be unique to Indonesia: South Korea’s competition law aims at securing an equal development between large firms and SMEs 21 but without protecting either category of firms Speakers provided examples of how SMEs can excessively. illegally monopolize a regional or local market. One case was presented in detail, the Indonesian Furniture In Indonesia the development of viable SMEs has Association (Asmindo) in Central Sulawesi, see box become one of the major development objectives of above. This example highlights how monopoly or the new government for economic as well as social cartel-like behavior by SMEs can harm other SMEs, reasons. To achieve this objective, the government is their trading partners and consumers. preparing new efficiency and market oriented, demand-driven SME programs which, it is hoped, will Other participants pointed out, however, that because be more effective than the more interventionist, a blanket exemption is frowned upon does not mean welfare-oriented SME programs pursued thus far. that there should be no exceptions to the competition These new SME programs will include the law at all. For example, in order to encourage establishment of an enabling business environment innovation and employment, SMEs may need to for SMEs (by eliminating the policy and procedural cooperate with each other in order to reduce costs impediments to SME operations) and better access and share risks. to finance and appropriate business development services (in the field of management, training, An American raised the example of the United States technology and marketing.) These new SME where antitrust laws do not obstruct joint programs, if designed and implemented correctly and arrangements aimed at creating new products or consistently, should be adequate to encourage the processes and raising efficiencies. At the same time, development of a broad layer of viable SMEs without the antitrust statutes do prevent anticompetitive needing additional provisions in other laws, including actions by firms whose goal is to prevent new the competition law. businesses from producing more efficiently or making new, more competitive products. Thus the enforcement of antitrust statutes preserves the Blanket Exemptions for SMEs opportunities for SMEs to continue to play an important role in technological change and to profit What happens when monopoly or cartel-like from the fruits of new ideas and technologies. behavior by one SME harms another SME or their trading partners and consumers? Indonesia’s competition law does provide a somewhat similar exemption with respect to cooperation An Example from Central Sulawesi agreements in the field of research. Similarly, • Only local private firms organized in Asmindo were authorized to control the trade of large- Taiwan’s Fair Trade Law permits exemptions for diameter raw rattan out of the province. SMEs if concerted action improves operational • This province’s Asmindo acted as a cartel, as efficiencies and/or strengthens the competitiveness only the registered members of Asmindo were of the SMEs and prior approval has been granted by allowed to ship raw or semi-finished rattan out the Commission. This type of exception appears less of the province. troublesome than the blanket exemption. • While this cartel was able to exert some market power vis a vis their buyers in Java or even in Consumer Protection export markets, their real market power was exerted (as a monopsonist) with respect to the suppliers of rattan within Central Sulawesi. Recognizing the importance of consumer protection • The suppliers were forced to go through in promoting consumer welfare, many competition Asmindo to ship their rattan out of the province. laws prescribe the protection of consumer benefits Not surprisingly, the trading margins for local as one of the final objectives of the law. Whether Asmindo members were very high. implicit or explicit, the laws aim at providing a greater variety of goods and services with high quality and 22 low price, by prohibiting cartels and other With respect to resale price maintenance, the JFTC infringements that would otherwise raise prices for has been successful in abolishing an exemption that consumers. resale price maintenance used to enjoy under the AMA in a wide range of products (except for In this respect, competition law can play an important copyrighted products, which is limited to six types of role in consumer protection by means of addressing products). In addition to the practices listed above, anti-competitive practices, especially in business to the AMA also prohibits related behavior. For consumer dealings. An important issue in business example, the AMA prohibits the practice of inducing to consumer dealings is coping with the information customers of a competitor by providing these asymmetry between the two parties, since the business customers with undue benefits in light of normal has more information than the consumer. Information business settings. There was a case in 1991 where asymmetry becomes even more amplified with the four large securities companies were reimbursing their technological developments and deregulation, using good customers for losses they incurred in new inputs or complex products such as financial investments in order to maintain a business services. relationship with these customers. The JFTC rendered a cease and desist order following investigation. In response to the information asymmetry, many countries have been taking measures to protect consumers under competition law. Participants Deceptive Advertising in Japan identified these measures and classified them into In 1998, cease and/or desist orders were issued to four categories: 761 cases nationwide for violation of the second category of prohibited practices in consumer • prohibiting anti-competitive practices in business protection, deceptive information. to consumer dealings; • prohibiting deceptive information; Examples include: a used car dealer rewound the • promoting information disclosure; and mileage meters when selling cars, a company retailer put a seal of Italian flag with the words “Fabric in • providing remedies for consumers harmed by Italy” although the clothes were made in China, and false or deceptive information. in another case a manufacturer of air-purifying machines was found to be indicating higher levels At the conferences, country experiences provided a of purification than was taking place. deeper understanding of both the importance of consumer protection and means of implementation. Since failure to indicate important information to the Japan consumer is prohibited in Japan under the AMA, disclosure of information is promoted indirectly. For Japanese competition law has a number of provisions, example, a real estate agent failed to disclose that the and the competition commission wide authority, to property had a legal restraint prohibiting construction, protect consumers. In Japan, major practices that are but the advertisement for the property did not disclose prohibited that fall into the category of anti- such information and as a result the failure to indicate competitive practices in business to consumer important information was found to be deceptive dealings (or business to business dealings closely advertising. related to the consumer) include resale price maintenance, restrictive practices among sellers, and Japan also has a fair competition code to promote restriction on parallel imports to prevent market further disclosure of information. Upon approval of access of new entrants. the Commission, firms or a trade association can establish a voluntary competition code in certain kinds of products with a view to effectively avoiding unjust 23 inducement of consumers, taking into account the modified its laws to make it easier to bring and win a features of the product. To date, 70 voluntary codes case of false advertising. The laws were modified to have been established. JFTC cautiously examines the allow for a dual criminal and civil regime, where codes and seeks public comments before approval. previously only criminal actions were available. False or misleading representations can be civil reviewable Peru matters or criminal offenses, depending on the degree of severity. Telemarketing, double ticketing, multi- The Peruvian Commission, INDECOPI, is somewhat level marketing and pyramid selling are criminal unique because it has a more expansionary role in offenses. Sanctions include fines and/or providing consumer protection than most countries. imprisonment. Sales above advertised price, The agency has a specially-designated Consumer promotional contests and similar activities are civil Protection Commission which is responsible for reviewable matters. Redress is done through cease investigating and adjudicating consumer protection- and desist orders, publication orders or monetary related complaints. The Commission can start a penalties. While the dual regime is considered a procedure ex officio or on complaints filed by either positive reform, countries wishing to adopt similar of the parties involved. After adjudication, the practices should be certain that safeguards are in place Commission can fine violators heavy penalties. to prevent the criminal adjudicative route being used Evidence of its role is found in the number of as a threat to induce settlement on the civil side. complaints: complaints on consumer protection and unfair competition account for 90% of all cases since A Canadian participant noted that enforcement the Commission started operating. activities should be used with cautioned however: at one end of spectrum agencies should be vigilant, INDECOPI is recognized as a leader both in Peru and protecting consumer and economic welfare against by its neighbors for its role in conducting consumer cartel activity. On the other hand, the law should also education campaigns that enable consumers to be applied with caution and awareness of the evolving actively defend their rights on the market as well as differences which exist in industries undergoing rapid for its participation in the fight against consumer technological change, provided that the conduct in discrimination. Other than investigation and question is fully disclosed. adjudication, one way in which the Consumer Protection Commission promotes such protection is Regulatory Reform through provision of services on information and training on markets rights. This includes providing It was acknowledged that the guiding principle for training seminars and information programs for deregulation should be that legislation should not citizens and access to technological information restrict competition. For public utilities, for example, database contained in patent documents. there is growing acceptance that only the distribution function (such as an electricity grid, a gas pipeline Canada system or a system of railway tracks) possesses natural monopoly characteristics and thus need to be Canada’s principle instruments for consumer regulated. With the growing acceptance and success protection are rules that seek to increase information of the free market model, nearly all public monopolies to consumers. One way in which Canada’s will be targeted for reform. Competition authorities competition agency counterbalances the information can play a large role in deregulation, primarily by asymmetries between seller and buyer through false providing expertise and dialoguing with industry and deceptive advertising rules. Recognizing that regulators. Generally, practice in other countries advertising’s potential as a tool, and its potential for suggests that this can be done on a formal level, abuse, has increased exponentially in today’s through interventions, or on a less formal level technology world the Canadian Bureau has recently through dialogue and cooperation. 24 In some countries, the competition agency may be issues is used by the administrative agencies when granted by statute the right to intervene to offer advice they design deregulation plans. on competition issues to regulatory commissions. Such interventions allow the competition authorities Questions from the audience led speakers to to bring a perspective to proceedings where the emphasize that effective communication should not regulator or the parties may not have the required be targeted only at industry regulators: actions of expertise or even the interest in addressing the market regulators may cause uncertainty and risk for an implications of the matter under consideration. investor. Communication should be with investors to assist the stakeholders in understanding the regulatory In Canada, for example, the Competition Act enables initiatives and requirements. the Commissioner to intervene before any federal board, commission or other tribunal and provincial The discussion continued on prerequisites, such as boards to provide input on the competition policy the need for ensuring that before introduction of implications of the matter under review by the competition into a sector traditionally supplied by a particular regulator. The Commissioner may make public monopoly it is important to remove from public representations or call evidence in relation to monopoly any responsibility for industry regulation competition issues relevant to the matters before the and to re-locate industry regulation functions so as to board. Once he has exercised his right, the prevent the former monopolist from enjoying a Commissioner has the same status as any other regulatory advantage over its rivals. Another intervener before the board. The main areas where consideration advanced was the importance of intervention has occurred include: designing deregulation in such a way to prevent public telecommunications, transport, financial markets, monopolies are not simply converted to private energy generation and distribution, postal services monopolies because apart from the problems anti-dumping matters. As Canada deregulated its associated with a public monopoly, private telecommunications sector, interventions were filed monopolists have greater incentive to maximize dealing with broad issues such as the appropriate profits with less concern for public policy regulatory framework post deregulation, network considerations. access and cross-subsidization to issues such as long distance rates and discounts. It was accepted by all advocates of deregulation that a key feature of reform should be to establish a As discussed in Part IV, competition agencies also mechanism to facilitate access to essential facilities. may offer advice on a less formal basis. In Taiwan, The mechanism has two main objectives. The first is for example, the Fair Trade Commission advises economic, i.e. to improve economic efficiency by administrative authorities when they are drafting introducing competitive forces into certain essential regulatory requirements of their industry to ensures facilities whose access is necessary for people to that the regulatory requirements of the administrative compete in upstream or downstream markets. To be authorities are consistent with competition goals. successful this generally requires regulation or other incentives to guard against monopoly pricing, In Japan, the Japanese Fair Trade Commission (JFTC) artificial constraints on capacity and anti-competitive acts as a deregulation advocate by conducting fact- behavior. finding surveys on various regulated industries such as transportation (airlines, trucking, and taxis). Based The subsidiary objective, one participant observed, on the findings, the JFTC works out proposals to the is to establish light-handed regulatory procedures. public regarding relaxation or elimination of Such procedures should be flexible enough to regulations in the government’s approval or licensing accommodate individual circumstances, not generate systems. While the JFTC is not in a position to carry unnecessarily high administration and compliance out deregulation, expert advice offered on competition costs but be binding on service providers and users. 25 When possible, regulation should be analyzed using Speakers at the conference offered important cost-benefit analysis. watchwords on privatization to competition authorities that are directly relevant for Indonesia. The first suggestion is that governments should be Suggestions for Indonesia careful not to rush privatization. Under pressure to The government’s current program of deregulation come up with a significant amount of money to cover can provide the context for the Supervisory the deficit there is a temptation to start the reform Commission for Business Competition to: program with privatization, but the experience of Britain (electricity, gas, water and telecommunication) • initiate a comprehensive review of existing laws has demonstrated that this is dangerous. Effective and regulations, • develop a consistent set of criteria for their competition laws should be established before evaluation, and privatization so that privatization occurs with the • identify and evaluate the net benefits that they proper capacity. impose. The second, related word of caution was that as This would form an important step towards governments may lose control of outcomes in a rushed eliminating unnecessarily burdensome regulations. agenda, prior operation of incentive-based regulation In the medium term, the government will need to have is essential. For example, where enterprises are natural access to consistent high quality advice in evaluating monopolies or dominate their markets, unless reforms the costs and benefits of proposals for changes to to market structure and incentive-based regulatory commercial regulations. programs are designed and trialed while the enterprise is in government hands, the benefits of privatization In this context, it will be necessary to develop institutional mechanisms for the provision of this may likely be wholly captured by the new owners. advice through a consistent framework for public or These two risks suggest that the government should net benefit reviews of legislation that impedes be devoting considerable time and resources to competition. backing competition law and competition authorities, not only for the present’s sake but to safeguard future reforms and development against these threats. Privatization In addition to ensuring that capture by the new owners Unlike in the consumer goods industry, deregulation does not occur, the competition authorities can also of utilities such as telecommunications and electricity address the competition issues in the privatization raises the wider issue of privatization. In Indonesia process such as oversight of the maximum number privatization is particularly important since it is one of shares purchased by a single shareholder, reviewing of the main sources of financial resources for the state the privatization regulations for conformity with and there are currently 150 state-owned enterprises market-based reform, etc. operating in a range of economic sectors mostly with some form of monopoly. Governments in general are eager to privatize to increase available monies for the Autonomy and Intra-Regional Trade state, and in Indonesia the budget deficit puts additional pressure for the government to privatize. Ensuring free flows of goods and services within the The most important duty of competition agencies in domestic economy represents an important the privatization process is to monitor the operation component of national competition law. This is of the privatized enterprises to ensure that these particularly pertinent for a geographically large and enterprises avoid abusing any residual monopoly diverse archipelagic country such as Indonesia. Many powers. of the gains of national union are lost when localities 26 can impose policies as though they were independent Indonesia must take care that local autonomy sovereigns because local governments often respond strengthens, rather than weakens, nationhood and to local interests and naturally tend to favor them, national competition policy. even at the cost of the national interest. Properly designed decentralization laws can be in Examples of local policies that can restrict internal harmony with competitive goals: for example, the trade flows include: provisions of Law 18/1997 now prevent provincial and kabupaten authorities from taxing agricultural • tax barriers to inter-regional trade products involved in inter-regional trade. As a result • discrimination against out-of-region businesses of this provision, the wedge between farmgate and • bestowal of monopsony rights market prices was reduced, and farmers were able to • quantitative restrictions on inter-regional trade command a greater share of final wholesale prices. • requiring in-region processing of exports • regional allocation of markets Improperly designed decentralization policies can • forced partnership programs contradict the goals of competition law. An example • local benefits not provided to outsiders is recent regulation involving consultants and • regional legislation with extraterritorial effects government procurement. Nearly one third of consultants in Indonesia are domiciled in Jakarta. The danger of local protectionism is in part because Responding to complaints from regional consultants it is epidemic: local discriminatory and protectionist and as part of the decentralization process in general, actions stimulate other localities to undertake various measures were taken by the government to defensive countermeasures and retaliations, all in a ensure local participation in projects. These measures process of action and reaction that can spiral out of had the effect of shifting the competitive criteria for control. winning government tenders from only technical capabilities, experience and price to consideration of The conference speakers on this topic shared many factors such as firm size and place of domicile. specific cases of anti-competitive local practices in Indonesia: quantitative restrictions on exporting In Indonesia, current national policies regulating the livestock in Nusa Tenggara Barat, in-region types of tariff and non-tariff barriers that can be processing requirements of cocoa beans and cashew imposed upon domestic trade are piecemeal, open to nuts in South Sulawesi, regional allocation of tea misinterpretation and abuse and in many instances markets in West Java, encouragement of partnership ignored by local governments. Conference programs by Estate Crop Services Offices, participants offered a number of suggestions for discriminatory transportation policies such as Indonesia as it designs decentralization and requiring licenses not available outside the region as competition policies: in South Sulawesi, grant of monopsony to PT Bima Citra Mandiri for sale of oranges. • Consolidate all domestic trade policies, whether While a well-intentioned competition law can attempt they be laws, regulations or government to fix problems of cartels, monopolies, etc., it can instructions, into a single law that explicitly also be weakened in the face of decentralization prohibits the imposition of a variety of tariff and initiatives that create power for local authorities, and non-tariff barriers to internal trade. as such room for local abuse. Indonesia is currently • Devolving taxation powers other than trade, such undertaking a comprehensive and ambitious as property of value added tax, from the center to decentralization program at the same time that it the regions. At a minimum, provide strict embarks on fostering a competitive economy. A guidelines to accompany any authority to tax conference participant warned that in decentralizing, interregional trade. 27 • Amending the Indonesian Constitution to provide VI. Going Global: The Internationalization of for free internal trade and to secure the authority Competition Law of the national government to override local action injurious to the national economy. The onset of globalization has brought with it new issues surrounding competition law. Economic integration has been facilitated by foreign investment in much of the world. Trade liberalization has lowered barriers and obstacles to entry for foreign products and services. Both factors have contributed to a changing marketplace that does not pay much attention to national borders. And yet, while competition law problems are no longer confined to national borders, enforcement remains largely within the realm of domestic action. Question arise: how efficient can national competition enforcement be, focusing almost exclusively on effects within a nation’s borders, in a world in which an increasing number of corporate transactions and practices have effects that are not confined to one jurisdiction? What role should national competition law assume for ‘global’ issues? This portion of the conference examined these issues and speakers proposed solutions to address global problems of competition. There are many competition problems that transcend the boundaries of nations. These problems include mergers in truly transnational markets; duplicative, pile-on merger control; beggar-thy-neighbor nationalistic strategies; and systems clashes. One presentation at the conference addressed how nations could improve their coordination on a horizontal basis to minimize these problems. While traditional solutions have been positive comity provisions and other horizontal government to government measures, the speaker believed that lack of sufficient horizontal government to government cooperation is not the major problem. Government officials acting for their governments, and sometimes also to solidify personal position, reputation or power, do not have sufficient incentives to treat larger-than- national problems as holistic problems of the wider community. 28 The problems of competition law she classifies into The problem of systems clash arises when one nation four categories: vision, proliferation, nationalism allows what another nation prohibits. Systems clash (externality), and systems clash. may lead to hostilities, possibly culminating in a trade war. Since there are no overarching rules or protocols The vision problem is that antitrust confined to to channel behavior to alleviate such conflicts, and national law obscures the full dimensions of world no rules for choice of law or jurisdictional priority, problems. For example, when the last two producers the most restrictive jurisdiction always wins. of seamless steel pipes appropriate for oil drilling in less developed nations planned to merge, neither they These last two problems, nationalism and systems nor their home nations (Italy and Germany) had the clash, were cited by a speaker who applied the incentive to protect China and the rest of the buyer problems of globalization to Microsoft (see box market, and the buyer markets did not have the below). Discussions on the Microsoft case led to practical ability to protect themselves from national solutions, for example that government monopolization. A proper vision requires a vision officials should bear in mind that enactment of from the top. competition laws that are inconsistent with other jurisdictions can place exceptional burdens on global The proliferation problem arises from the number of business. The Microsoft speaker said that government countries with competition laws, now approximately policymakers should make an attempt to harmonize eighty nations. Approximately fifty require pre- their laws with other jurisdictions to the extent that merger notification and the lapse of a waiting period harmonization is appropriate and consistent with during which time the authorities analyze the merger. important national interests. Firms whose business or conduct crosses borders often must comply with numerous national laws at Another speaker proposed two more solutions that once. These laws are not identical, and even identical addressed the problems internationally: education and laws have numerous interpretations and applications. more precision in existing international agreements, In the area of pre-merger control, one small country such as in the competition principles of certain WTO (in terms of a merger’s impact) can delay an entire agreements. transaction that has passed through the clearance process in some twenty or thirty other jurisdictions. Educational opportunities, she claimed, are waiting to be realized. The competition laws of nations are The nationalism (externality) problem occurs when divergent, and to some extent this is so merely as a nations make competition-law decisions based on result of lack of information and understanding. what is good for the nation at the expense of the world. Nations’ laws tend to achieve greater convergence Possibly for nationalistic reasons, nations refuse to through cross-fertilization. Also, numerous prohibit their nationals from doing abroad acts that developing countries that have recently adopted are prohibited at home. This is so even where the competition laws may need technical assistance and nation into which the sales are made also condemns could profit from benchmarking and competition peer the conduct but finds enforcement beyond its practical reviews. A firmer world infrastructure with a body power and resources. Moreover, nations selectively of common understanding could lead not only to the may fail to enforce their laws when the would-be anchoring of markets, but also to the strengthening defendants are nationals and the victims are foreign. of common cause, e.g., against both world cartels and An example of the nationalism problem is when a local corruption and privilege. country supports an industry against foreign claims of a domestic market-blocking cartel or against Second, some WTO agreements now prohibit certain foreign claims of domestic monopolistic exclusion private or other commercial restraints, such as the of foreign firms. General Agreement on Trade in Services and its 29 Telecommunications Annex. These agreements contain competition law vocabulary, such as “anticompetitive practices” and “abuse of monopoly position” without definition of these terms. The speaker explained that there is a particular need for the WTO nations either to adopt a choice-of-law principles in relevant WTO agreements or to develop common understandings of the competition concepts upon which market actors (e.g. telecommunications companies) can rely in conducting their affairs and upon which dispute settlement panels may draw. Many measures would be useful in facilitating the enterprise of better and more nearly seamless competition policy for the world. GATT/WTO rules and concepts of transparency, proportionality, national treatment, mutual respect, due process, and a prophylactic principle in favor of openness, are among the most obvious. As markets become more integrated, the benefits of such disciplines will become more apparent, their adoption more natural. While questions from the floor demonstrated that the debate is far from settled on the best route for internationalization of competition policy, a necessary factor for any solution, most agreed, is a global picture. A global picture gives further insight into problems that can be solved, and opportunities that can be seized, to enhance world welfare. While consensus did not emerge on how to internationalize competition law participants at the conference did welcome the idea of a global competition initiative that promotes education, perhaps a first step on the road to resolution. 30 Bringing Together the Global Picture: Views from a Multinational Corporation A Microsoft participants addressed the issues of globalization, internationalization and national competition laws with respect to the effect on Microsoft. The global nature, strategy and products of a company such as Microsoft can quickly be compromised by inconsistent or inflexible national competition law requirements which would force Microsoft to localize products, marketing, etc. This has a dramatic effect not only on the MNCs such as Microsoft, but also on the consumer who faces fewer and less capable products. Microsoft or its affiliates operate in virtually every country on the globe. Trade liberalization and other factors have made it possible for the company to market hundreds of products going through multiple distribution channels. Although reaching individual national markets all over the world, with limited exceptions, Microsoft’s products are designed for the international market. The overall design, structure and features of Microsoft products are mostly uniform, based on international standards and not tailored to national markets, so users benefit from interoperability around the globe. Uniformity also means a small software developer can create a single new product that can benefit users not only in large markets like the United States and Europe, but also in vibrant and growing markets such as Indonesia, without having to engage in potentially costly efforts to design the product for each market. In addition to uniform products, the core features of Microsoft’s marketing and distribution practices are similar across the world. This is also important to a global business as this approach lowers cost of production, licensing and distribution thus enhancing Microsoft’s ability to do business in emerging economies around the globe. This approach assumes a certain degree of harmony among competition policies, because if Microsoft had to follow a different distribution practice for every market where they do business, due to national laws, it would make doing global business prohibitively expensive. Given the nature of a business such as Microsoft, inconsistent or inflexible national competition law requirements can slow the rate and quality of new product development, frustrate legitimate business objectives, and ultimately harm consumers. For example, if under a particular jurisdiction’s laws, Microsoft or other software companies were forced to offer ‘featureless’ versions of their products each time that they released a new version incorporating a new feature, the number of software products that they would need to develop and support would grow exponentially in a short period of time and the market would soon be choked with multiple versions of the product. In addition, rather than developing a multitude of software products to conform to a particular country’s laws, companies might instead decide to withdraw from markets with particularly burdensome requirements. With the proliferation of new competition laws around the world there is an increasing threat that competition laws could be written or enforced in a manner that unintentionally blocks innovation since every national government has the power to adopt laws and regulations to regulate commerce within its borders. This threat is of particular concern to global businesses like Microsoft. The issue is how national competition and intellectual property regimes interact with one another in the context of integrated, worldwide business operations that cross many international borders and are subject to substantial competition oversight in other countries. 31 INTERNATIONAL CONFERENCE COMPETITION POLICY AND ECONOMIC GROWTH: ISSUES AND OPTIONS Shangri-La Hotel, Jakarta, May 22-23, 2000 SPONSORING ORGANIZATIONS: The World Bank, GTZ , USAID, AUSAID, CIDA and The Asian Development Bank Monday, May 22 OPENING SPEECHES • Mr. Kwik Kian Gie, Coordinating Minister for Economy, Finance and Industry, Government of Indonesia • Mr. Mark Baird, Indonesia Country Director, The World Bank SESSION I: Competition Policy, Accountability and Transparency (Global Experience) Chairperson: Mr. Erman Rajagukguk, Vice Cabinet Secretary, Office of the President, Indonesia Speakers: • Mr. R. Shyam Khemani, Group Manager, The World Bank • Mr. Terry Winslow, Principal Administrator, Competition Law and Policy Outreach Program, OECD, France • Ms. Sri Mulyani Indrawati, Director, Institute for Social and Economic Research, University of Indonesia LUNCHEON and KEYNOTE ADDRESS: “Complementary Reforms to Ensure a Competitive Enabling Business Environment in Indonesia.” • Mr. Jaseem Ahmed, Asian Development Bank, The Philippines SESSION II: The Role of the Competition Agencies in Promoting Market Transparency and Consumer Protection (Country experience) Chairperson: Mr. Muchtar, Secretary General, Ministry of Industry and Trade, Indonesia Speakers: • Mr. Herbert Sauter, Former Director of the Anti-Cartel Office, Germany • Mr. Takanari Yamashita, Deputy Director Int’l Affairs, Fair Trade Commission, Japan • Mr. Kuo-yuan Liang, Commissioner, Fair Trade Commission, Chinese Taipei • Mr. Armando Caceres, Chief Economist, Institute for the Defense of Competition, Peru • Mr. Calvin Goldman, Former Director of Investigations, Competition Bureau, Canada SESSION III: Promoting Efficient Markets through Effective Enforcement of Competition Law Chairperson: Mr. Luis Tineo, Private Sector Advisory Services/Indonesia Country Team, The World Bank Speakers: • Mr. William E. Kovacic, Law Professor, George Washington University, United States • Mr. Thee Kian Wie, LIPI and The Asia Foundation, Indonesia • Mr. Roger Featherston, Partner, Mallesons, Stephen Jaques, Australia • Mr. George Addy, Former Director, Competition Bureau, Canada 32 Tuesday, May 23, 2000 SESSION IV: Interface Between Competition and Regulatory Reform, Privatization, Investment and Unfair Practices Chairperson: Mr. Gilles Menard, Former Deputy Director, Competition Bureau, Canada Speakers: • Ms. Mari Pangestu, Centre for Strategic & International Studies, Indonesia • Mr. Ronald Adams, Former Director, Mergers and Assets Sales, Australian Competition and Consumer Commission, Australia • Mr. Achmad Shauki, Researcher, LPEM/University of Indonesia, Indonesia • Mr. Hideto Ishida, Partner, Anderson Mori, Japan SESSION V: Globalization and Competition Policy Chairperson: Mr. Terry Winslow, Administrator, Competition Policy Program, OECD, France Speakers: • Mr. Hassan Qaqaya, Competition and Consumer Protection Division, UNCTAD, Switzerland • Ms. Rebecca Lenaburg, Associate General Counsel, Microsoft Corporation, South East Asia Region, Australia • Ms. Eleanor Fox, International Trade Professor, New York University, United States • Mr. Edward Graham, Senior Fellow, Institute for International Economics, United States LUNCHEON and KEYNOTE ADDRESS: Private Sector Development in Indonesia Mr. H.M. Rozy Munir, Minister of Investment and State Enterprise, Government of Indonesia SESSION VI: ROUNDTABLE: Conclusions and the Way Ahead Chairperson: Mr. R. Shyam Khemani, Group Manager, The World Bank Discussants: • Mr. Soy M. Pardede, Vice-President, Chamber of Commerce & Industry, Indonesia • Mr. Gary Goodpaster, Partnership for Economic Growth, Indonesia • Mr. Hadi Soehastro, Executive Director, Centre for Strategic & International Studies, Indonesia • Mr. Didiek Rachbini, business consultant, Indonesia 33 INTERNATIONAL CONFERENCE COMPETITION POLICY AND ECONOMIC GROWTH: ISSUES AND OPTIONS Shangri-La Hotel Surabaya, May 25, 2000 SPONSORING ORGANIZATIONS: The World Bank, GTZ , USAID, AUSAID, CIDA and Asian Development Bank OPENING REMARKS: Mr. M. Zuhdi, Vice Governor of East Java SESSION I: Competition Policy, Accountability and Transparency (Global experience) Chairperson: Mr. Bambang Adiwiyoto, Deputy Secretary General, Ministry of Industry and Trade, Indonesia Speakers: • Mr. R. Shyam Khemani, Group Manager, The World Bank • Mr. Herbert Sauter, Former Director of the Antimonopoly Agency, Germany • Mr. Gary Goodpaster, Partnership for Economic Growth, Indonesia SESSION II: The Role of the Competition Agencies in Promoting Market Transparency and Consumer Protection (Country experience) Chairperson: Luis Tineo, Private Sector Advisory Services/Indonesia Country Team, The World Bank Speakers: • Mr. William E. Kovacic, Law Professor, George Washington University, United States • Mr. Takanari Yamashita, Deputy Director International Affairs, Fair Trade Commission, Japan • Mr. Gilles Menard, Former Deputy Director, Competition Bureau, Canada SESSION III: Promoting Efficient Markets through Effective Enforcement of Competition Law Chairperson: Mr. Gilles Menard, Former Deputy Director, Competition Bureau, Canada Speakers: • Mr. Ronald Adams, Australian Competition and Consumer Commission, Australia • Mr. Thee Kian Wie, LIPI and The Asia Foundation, Indonesia • Mr. Achmad Shauki, Researcher, LPEM/University of Indonesia, Indonesia • Mr. Paul Brietzke, Legal Advisor, Ministry of Justice, Indonesia SESSION VI: Conclusions and the Way Ahead Chairperson: Mr. R. Shyam Khemani, Group Manager, The World Bank Speakers: • Mr. Erman Radjagukguk, Vice Cabinet Secretary, Office of the President, Indonesia 34 SPEAKERS AND ROUNDTABLE LEADERS NAME OF PARTICIPANT ADDRESS Ronald Adams Former Director, Mergers and Assets Sales, Australian Competition and Consumer Commission, Australia Currently, Consultant adamsron@hotmail.com George N. Addy Former Director, Competition Bureau, Canada Currently, Partner Osler Hoskin & Harcourt LLP Toronto, Canada Tel.416 862-6798 Fax 416 862-6666 gaddy@osler.com Jaseem Ahmed Senior Economist Asian Development Bank Manila, The Philippines jahmed@adb.org Bambang P. Adiwiyoto Former Deputy Secretary General, Ministry of Industry and Trade, Indonesia Currently, Commissioner Commission for the Supervision of Business Competition Jakarta, Indonesia Tel. (62-21) 5296 1791/2/3 Fax (62-21) 5296 1794 adiwiyoto@hotmail.com Mark Baird Country Director for Indonesia The World Bank Jakarta, Indonesia Tel. 529-93061 mbaird@worldbank.org Paul Brietzke Former Legal Advisor, Ministry of Justice, Indonesia Currently, Professor of Law Valparaiso University Law School Valparaiso, United States paul.brietzke@valpo.edu 35 NAME OF PARTICIPANT ADDRESS Armando Caceres Former Chief Economist, Institute for the Defense of Competition, Peru Currently, Senior Fellow at GRADE Lima, Peru caceceb@terra.com.pe Roger Featherston Partner Mallesons, Stephen Jaques Melbourne, Australia Roger.Featherston@msj.com.au Eleanor M. Fox Walter Derenberg Professor of Trade Regulation New York University School of Law New York, United States eleanor.fox@nyu.edu. Kwik Kian Gie Former Coordinating Minister for Economy, Finance and Industry Indonesia Calvin S. Goldman, Q.C. Former Director of the Canadian Competition Bureau Currently, Partner Davies Ward Phillips & Vineberg LLP Toronto, Canada Tel.: 416-863-5561 Fax: 416-863-0871 cgoldman@dwpv.com Gary Goodpaster Former Chief of Party Partnership for Economic Growth Indonesia Gary@pegasus.or.id Edward Graham Senior Fellow Institute for International Economics Washington, DC, United States Tel. (202) 328-9000 Emgraham@iie.com Sri Mulyani Indrawati Director Institute for Social and Economic Research University of Indonesia ani@ipem.feui.org 36 NAME OF PARTICIPANT ADDRESS Hideto Ishida Partner Anderson Mori AIG Bldg.Chiyoda-ku, Tokio, Japan Tel.: +81-3-3214-1307 Fax: +81-3-3214-1383 hideto.ishida@andersonmori.com R. Shyam Khemani Group Manager (on leave), The World Bank Currently, Director Economics & Finance Law & Economics Consulting Group (LECG), Europe London, United Kingdom skhemani@lecg.com William E. Kovacic Former Professor, George Washington University Currently, General Counsel Federal Trade Commission Washington, D.C., United States wkovacic@ftc.gov Rebecca Lenaburg Associate General Counsel Microsoft Corporation, South East Asia Region Australia Beckyle@microsoft.com Kuo-yuan Liang Former Commissioner Currently, Advisor to the Fair Trade Commission Chinese Taipei kyliang@ftc.gov.tw Gilles Ménard Former Deputy Director, Competition Bureau, Canada Aylmer, Canada Tel. / Fax: 819 685-0134 menardg@sympatico.ca Rozy Munir Former Minister of Investment and State Enterprises Jakarta Indonesia Muchtar Secretary General Ministry of Industry and Trade, Republic of Indonesia Jakarta, Indonesia Muchtar @dprin.go.id 37 NAME OF PARTICIPANT ADDRESS Mari Pangestu Centre for Strategic and International Studies Jakarta, Indonesia mpangestu@shanghai.ssa.slb.com Soy M. Pardede Former Vice-President, Chamber of Commerce & Industry (KADIN) Currently Commissioner Commision for the Supervision of Business Competition Jakarta, Indonesia maduma@indo.net.id Hassan Qaqaya Senior Officer Competition and Consumer Protection Division UNCTAD Geneva, Switzerland Hassan.Qaqaya@unctad.org Erman Rajagukguk Vice Cabinet Secretary Sekretariat Negara Jakarta, Indonesia Tel. 384.8490 Fax 350.1522 Herbert Sauter Former Director of the German Anti-Cartel Office Germany Gtzmoit@cbn.net.id Achmad Shauki Researcher LPEM/University of Indonesia Jakarta, Indonesia Shauki@indo.net.id Hadi Soehastro Executive Director Centre for Strategic and International Studies Jakarta, Indonesia Hadi_S@pacific.net.id Luis Tineo Senior Private Sector Development Specialist The World Bank Washington, D.C., United States Tel. (202) 473. 2293 ltineo@worldbank.org 38 NAME OF PARTICIPANT ADDRESS Thee Kian Wie LIPI and The Asia Foundation Indonesia Peplipi@indosat.net.id Terry Winslow Principal Administrator, OECD Competition Law and Policy Outreach Program Paris, France Terry.Winslow@oecd.org Takanari Yamashita Former Deputy Director International Affairs Fair Trade Commission Tokyo, Japan Takanari_Yamashita@jftc.go.jp 39