Issue No. 599
Economy
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15 - 21 August 2002 Issue No. 599 Economy |
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| Published in Cairo by AL-AHRAM established in 1875 | Recommend this page | ||
Safeguarding healthy competition
Following years of debate, a draft competition law is taking shape. Mahmoud Mohieddin says the move is timely
The competition law issue has been raising its head, intermittently, for years. Governments promised to submit it to parliament, businessmen expressed reservations about it and academics and political activists voiced support for it. And yet, little has transpired. Until now, that is. The Ministry of Justice has finally prepared a competition bill that seems to be comprehensive and even-handed. The draft law aims to prevent producers and distributors from engaging in agreements that limit competition through control of prices or quantities of production. It sets regulations guaranteeing that companies with dominant position in the 'relevant' market will not engage in practices harmful to consumers. It ensures that mergers between independent companies will not lead to a situation of undesirable anti-competitive practices. In addition, the law will entail the creation of the competition commission as an independent body, to supervise its implementation.
If such a law were to pass, Egypt would have laid down the keystone for its competition policy for protecting consumers and safeguarding the smooth and proper operation of the market. The law will be timely, for more than one reason. On the local scene, the growing importance of the private sector in the economy has given rise to fear of anti- competitive practices and insidious loopholes. There have been various allegations of abuse of dominant position in various sectors such as building materials, retail distribution, food products, audio-visual products and health services. Cases of mergers and acquisition are constantly changing the structure of the market and altering the nature of business competition. Over the past five years, 90 cases of mergers and takeovers have taken place, primarily for tax reasons, affecting assets of over LE22 billion.
On the international scene, there are several reasons for Egypt to have a national competition policy. For one thing, the advanced countries have been requiring the formal inclusion of competition policy in the World Trade Organisation agreements, claiming the benefits of 'fair play' and 'level playing fields'. Countries that do not have national competition policies laws are not likely to benefit from international coordination efforts to combat international cartels which are considered the starkest challenge to national competition agencies. Egypt is party to several bilateral and multilateral trade agreements, including the agreement with the European Union which considers, with reference to the Treaty of Rome, competition policy as essential means for satisfying individual and collective needs. Moreover, dealing with multinational companies is another concern that may push Egypt to pursue competition policy for two reasons: first, it has been considered as a prerequisite of entry into the a developing host country by some multinationals, second it is required today by Egypt to counter the national impact of international mergers and acquisitions undertaken by multinationals. Still, a little controversy surrounding the law's stipulations must be expected. For one thing, the competition commission in charge has to be independent in order to perform its duties. It has to be able to resist pressure by interest groups. The commission will have to be subjected to parliamentary oversight, which leads to an obvious problem. Once there is a political responsibility born by a government minister on behalf of the commission, its "political dependence" may border on "operational independence". Somewhere, the line should be drawn to prevent this from happening.
There is also the practical question of defining the dominant position of a firm which has been subject for a debate. At which point should the competition commission start to be concerned with the rise of the market share of a firm in the market? With this in mind, the relevant market should be defined in a dynamic manner, taking into account the type of activity and the firm's 'external' activities. Perhaps a certain firm would be allowed a larger-than-average share in the domestic market if this were to help it compete better at a regional or global level. The cases of mergers and acquisition are fairly complicated, particularly if they cross borders. A few weeks ago, a court ruling forced the European Commission (EC) to reverse a decision that banned two tourism companies, with assets totaling $1.5 billion, from merging in 1999. The court found the EC decision ill advised and called for reform of EC bodies. The lesson to learn here is that agencies monitoring competition and monopoly should have the technical sophistication necessary to address highly intricate situations.
The competition law should also be consistent with international norms and laws. Legislators should make sure harmony is achieved between international standards and local conditions. There are different opinions over the nature of punishment for breaking the law. While some people favour prison sentences for economic crimes, others believe fines are sufficient. Recent legislation in advanced industrial states tends to impose prison sentences, as well as fines, on individuals convicted of economic crimes. This makes it even more necessary for competition agencies to be able to provide precise and reliable evidence in cases of economic fraud. A European expert told me, a few months ago, that the agency he works for has, in the course of its work, acquired substantial expertise. Had this expertise been available in the past, he said, many of the mistakes that had been made could have been averted. Perhaps this is a good reason for adopting economic punishment for economic crimes in countries with limited experience in this field. Fines, after all, can be paid back if a court ruling proves wrong.
None of the above arguments should dissuade us from passing a competition law. The market economy we have established needs proper supervision and adequate regulations implemented by competent agencies. For those, in the name of economic liberty, undermine the importance of this law for our economy, they can refer to Adam Smith the proponent of market forces and free economy who wrote in the 18th century, 'People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public."
The writer is Member of the General Secretariat and Chairman of the Economic Committee of the National Democratic Party.
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