South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Lack of competition orientation
Published: The Kathmandu Post, 21 January 2005
By: Ratnakar Adhikari

Some well-meaning government officials felt that Nepal's accession to the WTO would unleash insurmountable challenges to the private sector because of the entry of foreign investors as well as increased imports. They were also convinced that competition law, if introduced on time, would be instrumental in promoting the competitiveness of the domestic enterprises, thereby naturally preventing the entry of foreign competitors. This would also enable domestic enterprises to make a major headway in capturing the global market. They had a vision – a vision of prosperous Nepal, that enactment and effective enforcement of competition law would have brought about.

Even before they actually made a formal commitment, of course with the consent of their political masters, to include enactment of competition law as part of Legislative Action Plan in the Working Party Report prepared for Nepal's accession to the WTO, the then Minister for Finance had made commitment to enact the same by Paush end 2060. However, he could not get credit for enacting the law because he failed to do so within the stipulated time period.

But slipping of that deadline was not taken seriously. After all, that very government, of which the Minister was a part, was never taken seriously by anyone. The focus then shifted to meeting the WTO deadline, hoping that the government would at least take a commitment made at the international level seriously. Despite a lot of hue and cry by the civil society organisations, which constantly reminded the government of its international commitment, the latter did not only miss this second deadline, but also brushed aside this issue by stating that it was only a 'voluntary commitment' as the WTO.

The government had forgotten the fact that most commitments made on behalf of sovereign states at the international level are always voluntary. For example, no authority in the world could impose sanction against Nepal for having failed to enact a domestic legislation to implement the commitment it has made by signing onto Convention on Biological Diversity, even if a decade has elapsed since Nepalese parliament ratified this international instrument. After all, relations between two or more states are based on diplomacy and voluntarism. This is the reason why any international legal instrument – though agreed by many states as law – is considered a 'soft law'. The international community could only exert pressure though moral suasion not through legal means to make a country fulfil its commitments.

The WTO is the only international body, which could implement international legal instruments under its purview through trade sanction as the ultimate weapon. Therefore, it is considered the most powerful body in international economic rule making arena. That only failure to meet mandatory commitment would invite sanction, and voluntary commitment would not is a facile as well as self-defeating argument. This is because international community may not take Nepal seriously if the latter fails to fulfil a commitment made in good faith.

The first question international community could ask our fickle-minded authorities is: 'Well, you knew that implementing competition law was not a mandatory requirement of the WTO; and you probably knew that you did not have the capacity to do so given the level of your efficiency. Then why did you make a commitment to enact a competition law that too as early as July 2004?' The government may provide a readymade answer: 'Well, we do not have a functioning parliament, so…' But this will not be enough to satisfy the international community, particularly because the government ratified the WTO accession itself in the absence of a Parliament.

The debate might go on like this, but we will never reach anywhere. The major issue is that stakeholders at large have to come to grips with the virtues of a functional competition regime. Interestingly, on Paush end 2061 the government missed the third deadline, which was proposed through the Budget speech by the present Deputy Prime Minister and Finance Minister. Many people did not even notice it, because they did not understand the significance of the issue. However, the following three examples may help explain the importance of competition.

First, the fact that government lacked competition orientation due to wrong focus and misguided priorities became evident because it never provided the priority competition deserved in economic reforms programme. In reality, promoting economic development through competition and competitiveness should have been the touchstone of all reform programmes. For instance, privatisation process was initiated mainly to reduce the burden on government exchequer resulting from the mounting losses of public sector enterprises, not to promote competition. Similarly, on the face of it, interest rate deregulation was initiated by Nepal Rastra Bank to enhance competition in the market. However, commercial banks have made use of this to create a well-knit cartel and apply discriminatory interest rates at the victimisation of small borrowers. Though it did not serve the purpose and even one of the deputy governors of the Bank made an announcement in the public that he would bring culprits to books, he could not do anything about it.

Second, the sugar crisis during Tihar festival has become a regular phenomenon in Nepal. The government officials have even made statements in public and through media that 'sugar cartel' is responsible for the continuation of this sorry state of affairs, but they are unable to take any action against the unscrupulous business enterprises. Competition law will also not be a panacea for this; but a competition law armed with an independent competition authority – which is not likely to fall prey to political capture – certainly will. The moment sugar cartels are fined one rupee more than what they would earn by cartelising, they would have no incentive to engage in such an anti-competitive conduct.

Third, recent price hike of Nepal Oil Corporation (NOC) was quite expected. Since NOC is a monopolist and commands 'market power' – quite akin to political power of a dictator – it would be in a position to make any decision without having to lose its customer. It does not need to have a consumer orientation at all because consumers are devoid of choices. It can shamelessly pass on the cost of its inefficiency to the consumers. Neither is it required to introduce any cost cutting measures, because it has the easiest weapon in hand to recoup its losses. If our government had any competition orientation, it would have allowed private sector to enter this sector and compete with NOC. Competition could work wonders. This is evident by the fact that today Royal Nepal Airlines Corporation (RNAC) has to think twice before taking a decision of this nature – because it faces a competitive market.

Given this appalling scenario, the first thing the government needs to do is to enhance competition orientation in its decision-making processes. This needs to be complemented by enactment of an effective competition law. For the effective implementation of the law, independent competition authority is a must. This authority, among others, should be provided with adequate resources to conduct full-fledged competition advocacy programme. The ultimate objective should be to enhance the competitiveness of domestic enterprises as well as consumer welfare, through the creation of a healthy competition culture.

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