28 March - 3 April 2002
Issue No.579
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Al-Ahram Weekly Online 28 March - 3 April 2002 Issue No.579 |
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Free, not lawless
Bahaa Ali El-Din argues that legislation regulating competition is essential to the functioning of a free market.
It is a sad indicator that after more than a decade of efforts towards economic reform in Egypt and attempts to shift towards a market economy, we are still justifying the need for a competition law. That the need for such a law is not obvious became clear during recent discussions regarding the draft law completed in November of last year by the Ministry of Justice.
This story, though, does not date back only a few months. In 1994, what was then the Ministry of Economy prepared a draft law on regulating competition, which was later dropped. Several other drafts later appeared; all met with the same fate.
At the risk of stating the obvious, let us rehearse the arguments for having a market dominated by private companies and regulated by competition law.
Support for a market economy is based on the premise that if the private sector furnishes goods and services instead of state-owned enterprises, two important results will follow: first, the deadening weight of state-owned enterprises will be removed, along with all the attendant drawbacks that cripple an economy. Second, the private sector will then be freed to work for economic development. Numerous benefits accrue when private firms serve the market. Research and development flourish, the quality of goods improves, prices respond to consumer need. All these benefits, and many others, are the direct result of private firms striving within a competitive environment for customer approval.
A further principle is well-established: that even if all other structures are in place to support a market-oriented system, it cannot be assumed that private actors will act independently in the market place, or that the interaction of market forces will automatically maximise consumer welfare. Hence the paramount need for government intervention. Regulation must protect competition by prohibiting agreements and activities that could undermine it. This intervention should take the form of a competition law which provides a code of conduct for the economic arena. It should mainly proscribe anti- competitive practices and structures in the economy, with a view to maximising the benefits of competition to the consumer.
While all this might seem basic and undisputed, in Egypt it seems to be problematic. For some, at least, accepting the very need for a law, regardless of its form or substance, is a difficulty. And it is because of such concerns that eight years after the first draft of a competition law appeared, we still do not have one on the statute books.
Several important issues that seem to be misunderstood, misrepresented or used in a wrongful context need to be addressed. The first relates to the role of the state in the market. Markets cannot, of course, be left wholly unregulated: there must be some form of government supervision. Competition law aims at ensuring that the benefits traditionally associated with a private-led economy are secured and protected, and that no anti-competitive practices are sanctioned. Now, to argue that there is no need for such a law, as a matter of principle, is difficult to comprehend. Government supervision and competition law are an integral part of a market economy. To want a market ungoverned by competition law is to advocate something that simply has never existed in practice and cannot stand in theory. Secondly, some may argue that a competition law is indubitably important, but the time for it is not ripe, as the regulatory, judicial and human infrastructures are not yet in place.
Now, while such an argument has some force, its logical conclusions are difficult to accept: namely to have no law, either in 2002 or the past 10 years.
There are other problems with such an argument: will there ever be a time when it can safely be said that the required infrastructures are in place? Who decides? Government or business? Is it possible to create suitable infrastructures without a law in place to help test and develop the regulatory and legal institutions?
The final point that seems to be misunderstood is shown in the recent argument that it is difficult to accept a competition law as a matter of principle as it would harm investment. Now, is this really true? The argument requires some close analysis: it can either relate to existing investments or future ones. In respect of existing investments, this argument seems to suggest that gross anti-competitive practice currently dominates the market and that a competition law would harm the existing interests that profit handsomely by conspiring against the consumer (in this case, the Egyptian people). As for future investments, the argument seems to suggest that future foreign and domestic investors may fight shy of investing in Egypt if a competition law is introduced.
It is worth noting that this last argument is raised without even discussing the content of the draft law. Certainly, the structure of the draft law or its draft provisions might be counter-productive, making talk about a negative impact on investment seem relevant. But even so, such concerns can and should be debated with a view to improving the existing draft, not rejecting the concept of the law completely. The impression that investors would go bankrupt as a result of a new law could not be further from the truth and our questions should be how the law should look, not whether we should have it or not.
A competition law does not harm investment, current or future. Rather, the effect is the reverse. A balanced law fairly implemented will actually ensure that the whole economy flourishes; it will reassure future investors that failure or success is based solely on the quality of goods and services they can offer the consumer and that clear rules for competing with their rivals are in place. Existing investors will have to work harder to win market share and keep trading profitably; to do so they will have constantly to improve their business, and that is all to the good of the consumer.
Policy-making is about making choices; fortunately, in the case of competition law, the choices are not hard -- the interests of the consumer always come first. The government should ensure that consumers get a fair deal in the market and the goods they are offered, what they pay for them, and the terms of payment are the result of healthy competition. The government should also censure those who ignore the rules.
Some of the private sector's concerns about the regulation of competition are valid. In a published paper co-authored by the writer, the concerns of the private sector were identified. They are: fear of government intervention in a new guise; fear that some firms might unfairly use the law to smear competitors; fear that those who enforce the law may be unaware of the economic and legal peculiarities of this branch of the law; and fear that the implementation of the law might be hindered by corruption and profiteering.
While acknowledging these concerns, the matter should also be cast into a wider context. It should be accepted that in several sectors of Egypt's economy competition is virtually non-existent. Anti-competitive practices manifest as market-sharing by area and price fixing also exist.
It is worth noting that competition laws were introduced in Poland and Hungary in 1990, in Tunisia and Venezuela in 1991, in Mexico and Bulgaria in 1992, in Jamaica and the Ivory Coast in 1993 and in Zambia and Brazil in 1994. The list goes on. All this suggests that Egyptian worries in this regard are "unique," to put it mildly.
Although there may be numerous concerns about competition law in Egypt, none of them should lead to the introduction of this fundamental law being postponed or abandoned. The need for a competition law is urgent: there are strong suspicions that the Egyptian people are suffering from anti-competitive practices and that their welfare could be maximized if such a law is introduced.
The writer is Lecturer in Commercial Law at the University of Menofiyya
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