Discussions

Competition law and regional integration

Competition law and regional integration

10 Mar 2010

Taku Fundira, a tralac Researcher, discusses competition law and regional integration.

Over the past two decades, there has been growing interest in increasing and improving competition in the economic environment in most developing countries. This has largely been driven by a wave of neo-liberal economic reforms introduced since the 1980s, and in particular to the issues raised as a result of privatisation (Cook, 2002). During this era, vast reforms aimed at promoting efficiency were made in many developing countries to privatise state-owned enterprises and to open up markets to attract new entrants among others. However, in many instances, these efforts did not create a competitive environment simply because large multi-national corporations dominated the markets and their influence was left unchecked, and hence their tendency to exhibit anti-competitive behaviour in the markets. This and other factors reinforced the need to have appropriate rules and institutions to guard against anti-competitive behaviour in markets.

Competition law constitute the rules against anti-competitive practices such as cartels, the abuse of dominant market positions and other practices that constrain the operation of market forces. Such practices compromise not only economic efficiency but can also hinder small enterprise development, the entry of new firms into markets, limit consumer choices and raise prices that consumers and other firms pay for products and services (Wilson, 2006). In recent years, public interest objectives have been added to the list where issues dealing with economic empowerment of previously disadvantaged groups and the promotion of small business development have taken centre stage. South Africa’s black economic empowerment policy is an example that has been included in the competition law.

Competition law is a subset of competition policy where the later is influenced by a wide range of policy measures including policies directed towards trade and industry, employment and investment. For example, where trade policy liberalises market forces, competition policy provides the necessary checks and balances to ensure that the benefits of such liberalisation can be universally realised, and not only by a small group of market participants.

Hartzenberg (2004) stresses the importance of competition rules for developing countries in a liberalised trade and investment environment. However the development of a competition law and policy is not enough to ensure that the benefits of competition are realised. What is required is effective enforcement of competition rules. In developing countries, this is where the most significant challenge lies. This is mainly because most developing countries do not have comprehensive competition laws, but have elements of antitrust and competition promotion in various existing laws and policies. These have however not promoted a robust competitive market simply because of the existence of different agencies enforcing different laws and policies. In some instances these become counterproductive and negate the impact of enhancing competition in the market.

The challenges are further exacerbated by the increased focus on deeper regional integration in developing countries where most regional trade arrangements aim to attain customs union status.  A liberalised trade and investment environment implies an enlarged market and therefore new competition and new competitors that may enter domestic markets. Such entry can change the nature and intensity of competition in domestic markets and the possibility of anti-competitive practices thus motivates for competition law to ensure that the benefits of liberalisation are not eroded. The need for common policies and also the coordination and cooperation amongst national bodies to enforce the various policies that have a regional influence becomes very important.

The Southern African Development Community (SADC) and the Southern African Customs Union (SACU) both recognise the need for competition law. The SADC has started the process of building consensus and raising awareness of the need for a competition regime at the regional level. Article 25 of the Protocol on Trade provides for Member States to implement measures within the community that prohibit unfair business practices and promote competition. In SACU, Article 40 of the SACU Agreement of 2002 provides that the Member States ‘agree that there shall be competition policies in each Member State’ and, further, will ‘cooperate with each other with respect to the enforcement of competition laws and regulations.’ However, to date very little progress appears to have been achieved, in this regard, although Member States in both regional organisations are making significant progress in developing competition laws and the respective regulatory bodies in their countries.

Focussing on SACU, only two of the five Member States, South Africa and more recently Namibia have developed a distinct competition policy and set up independent regulators to monitor and enforce their respective competition laws. Botswana and Swaziland have competition laws and are in the process of establishing their respective regulatory bodies while Lesotho is currently in the process of finalising its competition law and intends to also establish a regulating authority as well.

The fact that the other smaller SACU countries currently have no functioning competition regimes makes it difficult to effectively cooperate on enforcement at a regional level as provided for under Article 40 of the SACU agreement. The absence of functioning competition regimes means that there is no legal basis for verifying and taking action against anti-competitive practices (Shilimela, 2007). The relevant market becomes a key focus when assessing anti-competitive behaviour at a regional level. Here, market definition becomes central to the implementation of competition law as it may transcend national borders, given that national competition laws usually provide for limited extra-territorial jurisdiction.

For a fully functioning SACU, there is need to ensure that all its members have established comprehensive competition policies, that have specialised and independent enforcement agencies. There is also need to build capacity and the technical expertise of the enforcers, including the judiciary. South Africa can play a major role by providing guidance and sharing advice based on its experience. Advocacy to build public understanding on the benefits of a strong and effective competition policy is also important. At the regional level, the challenge for SACU is to effectively create an environment where cooperation in the enforcement of competition law and policy is mindful of the conflicting public policies and competing private interests within each SACU Member State and the common customs area as a whole.

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Sources:

Cook P. 2002. Competition Policy, Market Power and Collusion in Developing Countries, Centre on Regulation and Competition, Working Paper Series, Paper No. 33 [Online] http://www.competition-regulation.org.uk/publications/working_papers/wp33.pdf

Hartzenberg T. 2004. How can developing countries improve the enforcement of their competition policy? tralac Hot Seat Comment [Online] http://www.tralac.org/scripts/content.php?id=2719

Shilimela R. 2007. Namibia’s Evolving Competition Regime. NEPRU Viewpoint No. 62, Quarterly Economic Review, June 2007

Wilson R. 2006. Competition Policy in the Southern African Customs Union (SACU), tralac Hot Seat Comment [Online] http://www.tralac.org/scripts/content.php?id=4515.

 

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